Netflix Founder Reed Hastings on Scaling High-Trust Culture & Bold Judgment

Transcript from https://podmenti.com/t/66acc887982545cf

During my twenty five years of Netflix, that was the dominant um non-family thing in my life. I think the big struggle we had in the early days was the contrast of loyalty.
and what that meant versus performance.
And we realized, okay, professional sports teams have a clear bargain of you're sort of playing for your position each season, and it is a performance culture, but the team can be quite close.
and can be um very supportive of each other. And we came to think of loyalty as a stabilizer, but that ultimately it was about performance. And that helped us clarify our own values, that we were more valuing growth and achievement.
And then when you get that and everybody's working towards the company's success, it's very powerful force.
Welcome to the Knowledge Project. I'm your host, Shane Parrish. In a world where knowledge is power, this podcast is your toolkit for mastering the best of what other people have already figured out.
Today's guest is Reed Hastings, mathematician, Peace Corps teacher, serial founder, and the contrarian behind Netflix. In 1997, he mailed a single CD to himself to test a hunch. Over the next 25 years, he led Netflix from postage stamp DVD experiments.
To a streaming powerhouse that rebuffed an early Amazon buyout.
Published the viral 127 slide culture deck that codified radical freedoms and the keeper test and placed audacious bets from a hundred million dollar commitment on House of Cards with no pilot episodes to green lighting Squid Games, which became Netflix's most watched series on record.
Since stepping back as co-CEO in twenty twenty three, Hastings has applied the same playbook to Utah's Powder Mountain, branding it the Uncrowded Mountain.
While doubling down on charter schools and AI tutors, he calls venture capital for kids.
Throughout it all.
He insists that culture is the true engine of scale and resilience. Discover in this conversation how he builds and protects A player cultures, outflings giants by rewriting the rules.
and port Silicon Valley principles into brick and mortar ventures and classrooms alike. I really enjoyed this conversation with Reed, and I hope you do too. It's time
To listen.
You are.
I wanna start.
With what you're obsessed with lately.
Well, let's see several things. Um, so n I would say during my twenty five years of Netflix.
That was the dominant um non-family thing in my life. And that was like one big thing with tiny little stuff around the edge. And now my life is more varied. So I have a big chunk of focus on uh charter schools. I'm on a half dozen uh nonprofits.
been working on charter schools in US education for two decades, big chunk on Powder Mountain, which is incredibly joyful. And then smaller chunks a bunch of other philanthropic projects.
I want to get into all of that. Let's start with Powder Mountain. You first visited in twenty sixteen, I believe. Yep, that's right. Um we had a house in Park City for 20 years, loved skiing there, and then uh got very, very crowded, as the whole industry has. And Powder Mountain is not in the epic icon ecosystem.
And so it was uncrowded and blissful. So um it's become uh a great place uh for me um to both enjoy. So we went there in twenty sixteen and then built a house um that completed in twenty one. Um and then I retired in twenty three.
And then crazily bought the mountain.
How do we make that leap? It's really hard for independent mountains to compete, I would imagine, especially in the era of Epic Pass. And
How how do you go from casually skiing to buying a mountain?
You know, I wasn't looking to do another capitalist thing. Um uh it was definitely a save the mountain because I live there uh expression. Um and we haven't done it yet. Um so you're right that Epic and Icon are fascinating because they're great businesses and they've made skiing, you know, for eleven hundred bucks you get a range
of options. So it's really popular with skiers. They sell, you know, two million passes apiece. They generate, you know, a lot of the visitation, and they're becoming bigger and bigger.
So from a commercial standpoint, it's what people want. So think of it as the Costco of skiing. Um, you know, you pay a fee and then you get great value.
Um, and um it's been very successful. So I don't really have any critique of it. But there's a sector of the market, um, maybe more like Whole Foods is to Costco, um, that's a little more specialty. So people willing to pay for uncrowded skiing. Um, and then that's
super fun and you get um wide open slopes and uh low lift lines, but it costs a little more.
Do you think that that's the future for independent Ski Hills? Like you're either gonna be one or the other, you're gonna be like the mass market supermarket almost, or you're gonna be niche high end. Yeah, I think um powder and the other independents need to strongly counterposition.
Um, or just become part of Epic Icon.
Um but you're not gonna live as you were because you lose a third of your revenue and all of your profit to the epic icon uh family. And it partially depends where you are geographically, but as a general rule, um you've got to counterposition quite strongly.
Do you think that that sort of eventually
become self defeating, you know, if we walk through maybe a decade from now and
You go to the mountain and the the lines are too long, the food stations are crowd, like you don't have a good experience anymore, not even to mention the skiing. There's no fresh tracks, there's no sort of
Uh and so people will opt out of skiing in in general, or will do you think that might but I mean again, if you're uh
historic skier and a purist, you might say, Oh, Park City's really crowded now. But it's also a great value and you've got this great icon or epic pass. And so far the money does the talking and people are showing up and visitation is continuing to grow.
Um, so it's been a very successful model of broadening um the skier base.
You've always set culture as a founder. So at first with Pure and then with Netflix. What's it like coming into an existing organization?
And either changing or enhancing culture.
So in in Powder Mountain and running that? You know, it's small enough, a hundred and fifty uh full time employees uh when I took over, um that it's pretty intimate. It's not um like taking over a substantial business. Um so I suppose it's a little different, um, but not materially.
And what changes have you sort of made with culture with respect to taking your learnings from Pure and Netflix? And we'll we'll get into this a little more later. Sure. I mean for the powder story, uh we've done many changes on kind of the positioning.
Um, you know, created a private skiing option. We've upgraded the employee uh compensation, sense of mission, sense of winning, many aspects uh of it.
And have you brought the almost um bureaucratic focus of Netflix into
Like the culture that you were famous for there into Powder Mountain? Yeah, uh substantially. So uh powder, I would say we've done, in my opinion, a slightly better job of it from the lessons that we've learned. So
In Netflix.
Um, there was the meritocracy and it uh and outsiders thought it was cutthroat, thought it was hunger games. Um, but inside it really wasn't. People looked out for each other, helped each other quite a lot, but in the words we use to describe it.
um were not warm and loving enough, and so it came across as uh brutal.
From the outside.
Okay, and so we're never really able to shake that, uh, kind of perception.
And in powder, we started with big hearted champions who pick up the trash.
And so big hearted, of course, loving and generous as the lead word in our kind of employee motivation. Champions like, no, we really do care about performance. That's that meritocracy aspect, um, very driven, keep or test, all the things that we had at Netflix. And then who pick up the trash.
is a symbol of self responsibility and everything is my job. Um, and people really do pick up the trash in both the metaphor and and r and actual ways.
I always find that interesting. I used to watch people when I worked in the government and they would like
push down into the trash instead. Like they would do anything possible instead of literally just like taking the bag out of the trash. And they would spend like five minutes doing this, right? And things would fall out and they'd pick it up. And I'm just like
What is wrong?
Like wrap the bag up and put a new bag in. Like
Yeah, everybody takes care of the trash at home, uh, and only some people do that at work. Well let's dive into a little bit of culture, but uh I mean, it starts with hiring and and this applies to Powder Mountain, Netflix, and and all the companies and even the schools that you're involved in. How do you go about finding
uh the right people.
I would say uh pretty imperfectly. Um, you know, you spend five or ten hours of interviews with someone, um and it's just hard to tell sometimes. So I'm pretty open minded. We'll take a chance on people, and then again, if it doesn't work out, we give them a package and move on.
Um, so some people say all the focus should be on the hiring process, and maybe they're able to do that incredibly well. Um uh I've found it's hard um to differentiate, and so I'm willing to give people chances and let it be a little more instinctual.
Yeah.
Um, and then you know, then you're with them for months and then you can really tell their performance as opposed to from the five or ten hours of interviews. How long
Is it before you really form that first intuition? Is it with somebody working directly with you? Is it like a week, two weeks into the job, three months, six months? Like at what point are you like, Okay, this isn't gonna work?
Well, it's rarely initially, so you uh almost always were in honeymoon, you know, for three months. Um, and then you might see some of the cracks um start to appear of
things and you know, some of it is coachable and some of it is not. So you first lean in on that aspect um and are communicative and and clear. Um
And so that's uh tended to work very well.
What was the highest value aspect of
interviewing people or doing reference checks. Like what was the one thing that you would say is like the eighty twenty of that?
I would say almost always uh I'll have a meal with them.
And it's sort of how they interact with um the service staff, the food, um um you know, aspects of human uh a kind of humanity and character.

Um might be one of the most telling.
That's a really good way to do it. Um, a friend of mine also travels with them.
He'll like go on a trip and see how they deal with the airport and the security line, like are they thinking in advance, are they frustrated by delays?
Uh I always think that that's interesting. How do you go about evaluating
Um
persistence or character.
Mostly by track record. I mean, if they've moved job, you know, every eighteen months.
Um that's
One pattern. Um and if they've been, you know, six years and then three years and then seven years, you know, uh with someone, you can sort of see that's that's their orientation. They dig in and try to make it work. So the the past, again, for a more senior employee where there's a long enough run to be able to see those, um, makes a real difference.
I remember listening to an interview, I think it was even last night, right before I was going to bed, and you had mentioned reference checks. How do you go about doing a reference check?
Yeah, I mean, we rarely ask people for references because those are so anodyne. Um, so then it's climbing through LinkedIn histories, finding cross uh things, going to quite some lengths um to get references um that will are more loyal
to me, um, than they are to the candidate. Cause again, you know, if you ul ultimately do all that and you end up with the candidate's brother, they're just gonna say nice things.
So you you gotta find s you know, intermediates um when you can. Sometimes you can't.
Are there any tips or tric for for doing that that you've learned over the years? Like do you go on LinkedIn and like who do we have in common and Well for sure. Um, but I'll go to like their all their prior, you know, generally they're currently employed, and that's not a safe place to go for them. So then I'll look at the prior employer.
and then try to comb through and try to find um people who work there uh who are probably new the candidate. And then I'll reach out, um, you know, and try to get a conversation going. Um, and then only after there's a little conversation going reveal that I'm calling as a reference.
Is there any particular question you find yourself asking over and over again?
Mostly it's the w would they hire them again.
If they wanted to come back.
And then once you hire somebody, what's the onboarding process like?
Not differentiated. I mean, we don't try to really specialize in making that great. Um, you know, hopefully they they get a laptop and an account and that all works. And um, but it's sort of uh I don't think there's much to do right or wrong in in that first week. You know, it's sort of just a full on immersion.
And you sort of take or don't, I guess, right? Almost like a transplant.
Uh, well, we're very invested once we've hired someone that they do take and their manager is invested in it, but I haven't seen anything really go wrong in the first week.
So it doesn't it doesn't feel very error prone. I don't know what year you put out your your first the deck that got released. I don't know if it was released or somebody 2009. I was like, man, I want to work there. I was like, this is the exact type of call. So it almost has a selection bias, too, because I imagine people see that.
And then they opt in. They wanna be part of this meritocracy. They wanna be part of this this culture of no rules and high trust and high agency.
Sure. Well, we had a internal uh slide deck and I would meet, you know, once a month with all the new employees as a group.

and then go through it. So this is two thousand six, two thousand seven, et cetera. Um, and most of the time their managers had well briefed them before they hired them on
what we thought was important. But once in a while we get people who were in total shock.

Uh, and I realized, oh, it's kind of uh unfair to this person that they got into something they didn't particularly want.
Um and that it would be better to give all the candidates um the slide deck sort of going through the culture. And then we realized of course once we're uh giving it to all the candidates, it's gonna get public at some point.
So let's go ahead and just make it easy for the candidates by making it public.
And that's what led to that uh release. But the reason it looked so um
uh port you know, uh unofficial it's'cause it was just an internal comms deck, um to to the new employee welcome.
But it made sense to sort of put it out there so people knew what to expect.
Um that's right. And then it had exactly the effect you referred to, which is the people who fundamentally wanted job security um over growth.
um were repelled and the people who wanted growth and willing to trade off job security, um
Uh loved it.
And so then we s we you know selected uh a very creative type of person who again was into performance and taking risk.
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One of the key ideas was talent density. Talk to me about what that means and how you thought about it throughout the organization.
Yeah, I mean I think the big struggle we had in the early days
was the contrast of loyalty.
And what that meant versus performance.
And um, you know, everybody uh wants loyalty and and they want performance.
And their uh attention.
And so as we sort through that, we realized, okay, professional sports teams have a clear bargain of you're sort of playing for your position each season, and it is a performance culture, but the team can be quite close and can be very supportive of each other.
And so that wrestling uh with we came to think of loyalty as a stabilizer. So loyalty gives you, you know, if you have a bad day, you don't get instantly fired, or if your boss has a bad day, you don't quit instantly. You sort of think things through solidly over, you know, a couple months.
Um but that ultimately it was about performance and
Um, that helped us clarify our own values that we were more valuing growth and achievement.

than we were, say, lifetime loyalty.
Um, which is different than a family company or or um or other relationships that we have where we value loyalty in our friendships, uh, in our marriage and other things. We value loyalty over performance.
Is it I remember an interview, I think it was Jamie Diamond who gave it and he said
I want loyalty, but loyalty to the company first and loyalty to people second.
Yeah, I mean
What he's getting at there is
Um, not a personal loyalty like political factions um where you look after
you know, your boss or something like that. Um but you care about the organization. And I do believe he's right that that creates a very powerful force. And it only works if they see the leader, in that case Jamie or
was myself at Netflix, um, are clearly willing to sacrifice their self for the benefit of the company.
Um, and then when you get that and everybody's working towards the company's success, it's very powerful force.
How do you think about the notion, Bill Belichick said, you know, I'm not collecting talent, I'm building a team.
I'm building the best team, not the most talent. What what what's your initial reaction to that?
It's too zero sum. I would say it's a little more of both.
Um, but what he's trying to get the point across is uh building the team is a distinct operation.
Um, but if you build the team from a bunch of high school football players
You know, that's not so um you know, but again he's he's saying it
uh dramatically to make an uh point. You know, it's like uh saying only the paranoids arrive. Um and when Andy Grove said that for two decades, that was like the phrase. Um and but it's not literally true because the paranoid are delusional.
Okay, and they could they see everything as a crazy threat and they can't differentiate what's an important threat and what's not and what's reality. Okay, but you know, he it it was a provocative uh and memorable statement.
To try

business leaders to be more worried about what could happen to them.
Talent density isn't just about bringing in talent. It's also about
uh removing people who maybe
uh the role has changed, they're no longer suitable or they were never suitable to begin with.
How did you go about
identifying and then removing I mean one of the things that I think you did was severance packages, but you said
Uh, and it correct me if I'm wrong here, that the severance packages were for managers. They weren't for the employees,'cause it it gave the managers almost permission to remove people.
Sure, the money goes to the employee. Okay, it doesn't go to the manager. Um, but um managers are generally selected because they have good human skills and they like people.
And so it's very hard for them to let people go.
Um, and so if you are giving um the terminated employee a big severance package, it makes it easier on everyone.
Um and so uh that's one of the hidden benefits of it. The other is getting a release. So you know, Netflix has let go many people. And I mean, maybe there's a few employee lawsuits, but hardly any, again, because the severance package is bigger.
And then we generally don't do performance improvement plans, which are sort of a way to document the employees poor performance so that you can win a suit.
Instead, why not give just give'em a check? And you know, there's so few people who get put on a pip that then um, you know, turn around. Um that it's a I think it's a false system of legal protections.
that doesn't work. And again, it's better to g give them a generous severance package, have them sign a release, and help them on to their next challenge.
Is there anyone
It was either.
on a pip that you know of that turned around or anybody that you
had formed an impression of after three months that was like this isn't gonna work out and then it turned out to work out spectacularly.
Well again, we didn't use pips, but I would say are there people who um
got into a rough spot and got out of it, absolutely.

Um, and the more someone was a longer term employee, the more
Uh the rough spot was sort of
uh took it taken in context and we would try to say, Okay, let's see if we can shift them into some other role and see if they can get back to, you know, being miraculous in that role.
You've said, and correct me if I'm wrong, processes can be the death of innovation, yet every company needs some structure as it scales. How do you decide
Which processes to add and which to remove.
Yeah, I mean that sounds like a long quote, I would say it. Uh let's
Let's tighten it up of um
Mm.
Manufacturing provided most of the GDP growth.
from uh the beginning industrial age, so eighteen hundred, you know, through to I don't know, nineteen ninety.
Okay. Um so 200 years manufacturing's providing the the GDP growth. And manufacturing is about consistency, about driving out error, about incredible process attention, replication, perfection.
And it's not that there weren't ad agencies, you know, in the nineteen fifties that were kind of kooky and crazy. There were, but it's a tiny part of the economy.
Okay, so the metaphors that we all picked up around process think of way classrooms are basically organized like factories. Lots of things are organized like factories, because it was the prevailing uh metaphor.
And then the economy, you know, shifted a lot to and higher value things were creative work, um and inventive and uh intellectual.
And for those things that are inventive errors an inherent part of the process.
So um think of it as in manufacturing you want to drive out um variation.
And in innovation you want to increase
Variation.

And so process uh really is the language and model.
of driving out variation and getting to consistency. And if you're in a safety critical business like an airline, it's a good thing.
And if you're an inventive creative business where your main threats are that someone else is gonna invent something nearby you, uh, then you wanna minimize that and maximize the the innovation.
A large part of the CEO's job seems to be rooting out
Bureaucracy.
How did you go about preventing that from creeping in?
Well once you have a to let's take a
um expense policies. Okay. So you know, most companies have policies you can spend two hundred and fifty dollars in certain cities and
you know, more in Tokyo and you know, less in Omaha. And they're trying to save money, right? And they're like trying to be careful with expenses. And then you've got to have a whole bureaucracy to administer that, to make sure people comply with that, to educate them and whatever.
And we got rid of all that and we just had a travel as you would on your own nickel.
Um, and you know, I'm sure there's, you know, occasionally some expense that gets done that shouldn't be, but compared to the cost of enforcement, it's 90. So you know, again, that's more of our freedom and responsibility approach.
I like that approach better because it treats people like adults.
Yes, and you in treating people like adults, you want to set some context, um of you know, kind of what we mean by that and give some principles and examples. But yes, you're again, it's getting away, it's moving from the industrial model to the knowledge worker model.
Um, and yet many of our corporate forms um haven't adjusted fast enough.

to the the basic work.
How did you go about recognizing good judgment?
I mean, I think people take bets about what's gonna work, and if they do end up working, then we say they had good judgment.
Um so I think we recognize it by
By them making unusual choices.
and having those be quite successful.
I think a bit like advantageous divergence. You go against the crowd and you're correct. That's right. And in those moments. Do you think judgment can be taught?
Uh I think so. I mean I you know, to varying degrees. I mean it's kinda like um music or something which is everybody can learn some music. Probably only some people become fantastic at it.
Um, uh, but you need some teaching in it for sure. It's not just like it's not like spoken language where it's so wired into our biology, everybody learns to speak.
Let's talk about Netflix for a second. You left the co CEO role, you're now on the board.
How
hard has that been to walk away from something that you created and not be hands on and not be in the weeds and and sort of like to be sitting on the board. It hasn't been hard at all, uh partially because Greg and Ted
you know, were with me for twenty years and uh they were very ready. And so um it was exciting for them to get the opportunity that I had, you know, to have the responsibility and to manage so much uh global complexity. So I was excited for them.
And you know, they've done a great job these last two years, so that helps. Um and then in terms of my own time, it was nice just decompressing and then spreading uh my focus, you know, around these um different philanthropic and then uh powder mountain efforts.
Can you maybe riff a little bit on the competitive landscape of online streaming?
Well, it's, you know, very broad. Um, you know, everything from uh YouTube
you know, to HBO. Um, and then in every nation it's a little bit different. There's a lot of national networks. Um and so uh Netflix earns, you know, depending on the country, like five to ten percent of television viewing. Um, and so we got a long way to go.
And we l we as we say inside, we lose most of the time.

you know, um we don't win the majority of television screen time. So then it's like okay, what is what are the
um types of entertainment that we can do and how well can we do them to earn more time.
And is that part of the move into gaming?
Uh, it's moving in gaming, unscripted uh content. Um I mean initially we were just film um and not even in TV. So yes, we've expanded uh category by category to see um where can we earn more time or, you know, do a better job than anyone else in entertaining our members.
Do you think it's inevitable that live sports becomes part of that? Well it uh on Christmas, uh we had two NFL games, so I would say it is part of that. Um as one of the things that uh Greg and Ted have done uh because uh I was always very skeptical, um, not of course of the of the um viewing but
But that there could be a good long term proposition there. And the and um they've uh proven me wrong and have found good models where it makes sense uh for Netflix, the company, and of course for all the members.
One of the interesting shows that you guys um did about F one Drive to Survive, is that what it was called?
Uh you
Turn.
A whole country.
really onto an industry. And and it's so interesting to me because you
uh single handedly change the trajectory of F one across
Yeah.
Uh not that it was bad before, but you definitely increased the slope of adoption and interest.
And you captured so little value of that.
on a value basis, like billions of dollars accrued to F one.
And I'm I'm
Positive you guys didn't make billions of dollars out of that show.
How do you think about that and and your role in
um driving eyeballs and attention.
Well look, F1's been working hard for fifty, maybe a hundred years, you know, building up. So they they they deserve, you know, that lion show. It is certainly true that when we set a show in a context and
And then the show works as Drive to Survive did, um, then it popularizes that thing. But if if we w it doesn't like bother us that they profit from it.
Anymore than if we did a show that was set in farming and you know, and then all these people are like growing apples. It's like okay, you know, in other words, we're
looking to have incredible entertainment and F1's an incredible context uh for that.
Um so um doesn't bother us that they uh
Um, bet on us and then we delivered.
I guess where I was thinking about that is like, do you envision any future in the next, you know, twenty or fifty years where
maybe you actually buy a sports team or a franchise, or you could have bought F one before this and then made the show and then
uh captured that advantage to you also had exclusive broadcasting rights and all of these other things they sort of tie together.
Well you'd have to ask Greg and Ted about that. They will they will uh be the ones trying to figure out does that make sense, uh in our continued growth and um stimulating entertainment or not.
The other show that I want to talk about is the Dave Chappelle.
caused a lot of controversy. How is that handled internally inside Netflix and how do you see your role
in terms of what you err or don't err.
Sure. Um, you know, back in
2018, 2019. Uh, let's see, we probably did our first Chappelle special in like 2015 or 14. Um, so we had a great relationship with Dave um and uh had done a number of his stand-ups and they were super popular, some of our most popular uh stand-up shows. Um
On the same hand, we were trying to ex be very inclusive and to have uh many people be able to thrive at Netflix's employees, including our transgender employees.

And so the tension became we said to our trans employees and their allies, Hey, we're very trans friendly. If you're fantastic at your job, you know, uh again, it's great. Um, and we're an inclusive place of work.
And then some of them felt that in doing the Dave Chappelle show, which had some trans jokes, which I don't believe that Dave is anti trans, but he definitely takes on some of the issues.
um that they were being undercut as employees. Um we were creating a hostile work environment, uh, which got them to protest internally. So that was the storm in maybe twenty nineteen.
And it was good for us to realize that we were not resolving this conflict between
customer entertainment um and employee values. So for example, in many of our shows people have guns and blow people up and shoot people and and yet we don't want a workplace that's filled like that.
And so we realized entertainment is an escape where various things get said and done that are not
endorsing that as workplace behaviors. But we hadn't really clarified that. And so we sat down and we did an amendment to the culture memo, um, and tried to really explain that
Entertainment is not always gonna be stuff that you love or that you emulate or is is admirable. There's lots of stuff in entertainment that's not admirable. Um and if you don't wanna be in the entertainment business, that's fine. But if you do, this is a core part of entertainment.
Um, and then because we clarified all those expectations, you know, a few people left, but for the most part, uh everyone understood that makes sense, that's the rules, and and we move forward uh together.
Maybe just riff on how you see
the inclusiveness DEI playing out in the workplace and how it could be better incorporated or because there seems to almost be an
uh um anti DEI movement at the same time now.
um that's going on politically or within companies.
Where people are questioning whether people deserve their roles just because they might be a minority or underrepresented. How do you think about all of this?
Yeah, I mean there's certainly um the US federal government is leading this anti-DEI push. Um I don't know how much it's affected Netflix. Uh again, you'd have to ask Greg and Ted about that. Um
But I would say in general for us, we always focused on inclusion. We never called it D E I. Um, for us is we want everyone
Who's a Netflix employee to be able to contribute at their highest ability, because that's in our commercial interest. Um so uh perhaps we can go as far out on a limb as, you know, some companies did.
Um, but our inclusion efforts have remained strong, and again, we want people to feel comfortable so that they can contribute uh at their highest level.
I love this quote from you. I have two religions, customer satisfaction and operating income. Everything else is a tactic.
Talk to me about that.
Yeah, I mean there's uh another way to say c uh customer satisfaction there is revenue, right? That's the top line, and the um operating income is the bottom line. So
You want to be, uh, I think Bezos is the one who who said this best, to sort of be very firm about certain principles and then very flexible on the tactics. And then this is a specific application of that, which is um
Let's try to think through things that grow customer happiness and also grow operating income. And you know, and it's quite hard to do both of those. It's easy to do one or the other at the cost of each other. Um, but the art of business is doing both of those better than your competitors do.
You put a hundred million dollar bat on a house of cards.
Having never watched the pilot.
What?
gave you the confidence that that was gonna work out. And I think you beat out HBO for the show.
Uh, what data did you use? How did you make that decision? That was a big bet at the time.
Well that's a hundred percent credit to Ted Sarandos. Um so um uh Ted um had been working um with David Fincher and trying to develop some of these ideas.
The show was up for bid. And then um uh Ted put in this two season bid, um, which was unheard of at the time. You know, HBO had a precedent where they don't do that, um, so they didn't match. Um, and then
uh that team and Media Rights Capital uh went with us. Um, and it turned out fantastic. Um, but that really all of that uh bravery is due to Tad Cerrandos.
Well what data goes into those decisions? I mean, like how did Ted make that decision?
You know, there's
uh some data, but I would say that's raw it's instinct that the thing you've got a partial script.

You've got some casting and you have to guess how good is that show gonna be.
So uh to figure out what it's gonna comp against in terms of your data.
So there's no real data that tells you that was an instant call.
Is it harder to create content that hits
Or buy content that heads.
Well if you
By buy content that hits, you're implying that it's never been shown. So the the later it is in the pipeline.
Okay, the more it's just a sketch.
Boy, it's hard to tell. The more it's a complete script, you can tell a little bit more. The more it's a script and a cast, you can see a little bit more. The more it's a script and a cast and some dailies, you can see a little bit more. The more it's an edited, completed thing, then you can really take a guess, okay?
But you still don't have that much public reaction.
The more you've done test screenings, you can tell. So at each stage, you get more information, um, and you're more likely to be right. But in all of the stages, it's a lot of judgment.
So a simple case would be Squid Game. So we knew Squid Game would be big in Korea.
Or we highly suspected it would be, but the fact that it took off globally, um, you know, was a surprise to us, and we've been doing it for twenty years.
So um again, there are some surprises in there. Um but you're increasing the odds each time you do these things of learning. Um and the team's gotten better and better at learning uh which things are going to get really popular.
How do you uh
Using data, obviously, to inform what you're creating.
but also allowing for serendipity and unexpectedness and variation, as you would tell, if you're only using we know people like this based on their viewing habits, how much they watch, where they stop, all of this stuff.
We can create more of this pretty easily. How do you think of that in terms of variation and surprise and new
Innovative shows or ideas.
Um we you know, we stimulate uh a lot of judgment of people trying new things and um sometimes we celebrate the failures that don't quite work.
Um, because they you know, again, you gotta be willing to have people try things. Um and it doesn't really work in entertainment to say, let's do a show just like that, that that rarely ends up successful. Um, so there's not much risk of going for that because it's not a good commercial path.
How much data do you collect on what I watch?
You know, we have some basics, um but it doesn't help us with the next show. So
Um, the thing that's helpful is at the end of a Netflix show you give a double thumbs up, single thumbs, or thumbs down. We know you finished it, but maybe you thought it sucked.
Um, and so we really want to know what you thought of it.
Um so that's the probably the piece of data that helps the most.
I just want to let you know my kids go in and they often mess up these little thumbs up, thumbs down things. Sometimes I see these recommendations, you know, when they were younger and I'm like transform I don't watch Transformers. Like what?
Yeah, well, as kids evolve, uh us adults don't evolve that fast in our taste, but um kids do. So Well they do it on purpose, right? Yeah, yeah. And they totally hijack my YouTube too. All these recommended videos. I'm like, what is going on here?
Talk to me a little bit about AI and maybe rough on
how you're seeing it used today and and how you see it being applicable and and yeah, just walk me through a little bit of your thoughts on that.
Um
Well let's see, in a Netflix context
Uh Ted and Greg really lead that work. Um, you know, Ted's
important quote about a year ago was, you know, you're not gonna lose your job to AI.
You're gonna lose your job to a producer who uses AI.
Um and you know, it's a tool.
for people to use. Um and hopefully everybody will use it and raise the level of performance just as they did with, say, digital filmmaking.
Um
at uh Powder Mountain, uh we haven't found very many uses for AI yet. Um so you know, we use AI a little bit in marketing copy, but um it's pretty minimal. So I think there'll be, you know, a number of businesses that um are impacted a lot and other ones that are impacted much less.
How are you using it personally?
As a search replacement, so I tend to use um uh Claude uh, you know, or Gemini or OpenAI where I would have you search. So in the ski industry, I've been learning a lot of things about
um lifts and lift, you know, s cable strengths and other things like that and water systems and I'll be
educating myself essentially through AI, through posing a bunch of AI questions.
Has it changed how you go about learning about these things? Cause skiing is an entirely new industry when it comes to like lifts and cable strengths and
And sort of Yeah, I mean I think twenty or forty years ago you'd probably have to go to some engineering textbooks.
um or was very opaque about um how to do that. The rate of learning is much higher now, um, because of AI.
Um, you know, first search and that that made a big difference for twenty years and and then AI is really improving that.
You do a lot of work with charter schools. I'm gonna come a little bit higher level in a second, but how do you see AI playing out in the classroom and and learning? I mean, I think uh AI for teaching kids is a awesome application. Um you know, generally you're in a classroom
with twenty or thirty kids, and it's very hard for the teacher. The kids are all at different levels. Um, and it's a very industrialized model. All third graders are gonna learn the same thing today. And that really, uh again, that's for the convenience of the operator of the school and for being able to handle mass education.
And AI offers the potential of every kid gets their own tutor, goes at their own pace. So um there's a lot of efforts going on now on the board of Khan Academy, a nonprofit that's really pioneering a lot of stuff with Con Migo.
Um, um, helping other uh for profits like L O E L L O that does a reading app that's amazing. So if you have a five to seven year old, um
It really helps the kid develop a confident reader. The v the AI is very patient.
And we'll listen to the kid and then correct them and and then help them get stronger and stronger in their reading. So you know, and we're scratching the surface. So in the next ten years, you'll be able to have a complete K twelve and probably university education uh with AI on a phone or tablet.
that um will be really change learning. So think of it
As as AI is getting more impactful in society.
the standards of what people need to know and can know is much higher. So we've really got to do this pivot to individualized education.
from mass classroom lecture style communication. How do you see the role of the teacher changing in that?
Well the teacher will evolve to be a little more like a social worker, um and a motivator. Um so they're not actually giving the instruction in that long term case. All the AI is doing that. And they're doing the social emotional learning.
Okay, so how do you interact with other students? How do you do the project? How do you sit still?
So think of them as becoming social emotional experts, and that they're pretty good at that already, and less subject matter. What happened in twelfth century England and you know, and they do regurgitate in the facts, which is a lot of what they have to know now.
So it's them becoming again specialized in the the social emotional side. Uh, and then you've got this huge numbers of companies now are trying to do AI for education. Um, so it's a big scramble, a lot of competition, very exciting.
Yeah, I think it it's gonna be really interesting to watch how it plays out, like since
Synthesis Tutor just got
uh a state on board signed on to teach math and a whole country, I think El Salvador
Starting in September, their whole country and the uh in past September and the the results are staggering. Kids are learning faster, better, they understand more.
Yeah, and again the the classroom model has so many inefficiencies um in how it's organized, how little learning happens, um that
It's a great AI application to take on. And then also young people are very adept at new technologies. So it's got a double wind. So I think education will be one of the big uh areas transformed and everyone will be able to get a a better education.
Just an as an aside, I tell my fourteen year old I think he could be a mid level employee in most companies if they never saw him.
just based on his output alone. Yeah. Cause for him, AI is like his arm, you know? Like he's been using it since he was young and it's just second nature and
He knows how to how to work that and I think the danger for a fourteen year old like that is then they sit in a classroom and they can get pretty bored and then they can act out and then they can get labeled in various ways. Totally. So um you know, it's why the
Again, the industrial education system, you know, is uh slowly adapting in in uh good ways is to avoid that outcome. And then uh charter schools are US.
form of school governance where a public school is a nonprofit. Um and they get to be independent and operate under their own rules, um, but they operate as a nonprofit focused on the kids and they're a little more flexible.
than uh the government run schools because they don't have the civil service orientation. Um, and there's quite a range of them. Um, there's no one uh learning style for charter schools. So it's more like a governance change, again, where they're run by a nonprofit.
Why is education so important to you?
I mean it's important to everybody, you know, so I don't think it's not. Yeah, but not everybody dedicates their time to it. Sure, I could be working on environment or uh aquaculture, lots of things. Um right out of university, uh I became a math teacher. I was a Peace Corps math teacher in Swaziland, uh, which is between South Africa and Mozambique.
And spent two and a half years teaching. And so later in life when I became a philanthropist, it was the thing I knew a little bit about. Um, so I I would have to say it's a bit random in that way. Um, but then
You know, what I counsel people is all the problems that we have with society today.
Are the ones our parents and grandparents couldn't solve. They're selected to be quite challenging.
So if you dig yourself into one major societal problem and spend your life on that, that's a great outcome, you know, to try to make a difference in one of these hard problems.
And why charter schools? Why why not tackle it through the Department of Education or a different way? Why did you pick that vector?
Well, I came to believe that the government running the schools was sort of the essence of the problem. Um and that it would be better and more effective to have nonprofits. Like if you look at the university sector, you know, and all of our top universities, they're all nonprofits. And so it's modeling on that.
Um so it's a it's a shift from uh kind of more government bureaucratic control to nonprofit control.
One thing I think we both agree on is the quality of opportunity.
And it's not always that way in the education system. Your zip code or your postal code or wherever you live can dictate
the quality of education you get. How do we go about increasing a quality of opportunity?
Well, I think tech is probably the biggest driver of that, um, you know, which is if we can have AI tutors um that are like in con academy's case free.
um or uh low cost in other cases, uh, you know, on tablets that are widely available.
I think that's an incredibly uh
a great way to expand the franchise of learning.
What
If you were to take over uh education in charge of the country almost, uh from a s specific vector, what policies would you change? What would you change in the classroom? What would you include? What would you take away?
Um mostly I'd focus on school choice, um and uh giving teachers the tools to create a school.

Um because that you get that flourishing of, you know, there's lots of teachers who have very good ideas about what would be the perfect public school, at least for some sector of kids, but they have no way to do that in the current system.
So it's then allowing them and supporting them to create a nonprofit, to create a school, and then to give the parents the choice to join that school or not. Um so the whole model of
Um
uh teachers getting to create lots of new schools and then parents choosing which of those schools they want to go to um is something I think would be transformative in a positive way for kids' outcomes.
What do you think goes into the decisions to transfer? I'm I'm thinking as a parent, what would cause me to transfer charter schools
Uh, maybe it offers the hope of better education.
and better teachers and
Maybe it also
deviates to the negative.
Um not all of them are gonna be successful.
So there's a risk involved in that. How do you how do you think about that from the parents' perspective? Yeah, I mean it's a little like you you know, for parents who send their kids to university, they have the same thing. Some universities seem good but aren't really, or it can be a good university and you have a bad experience.
So there's no perfect outcome uh in that. And then in general for charter schools, um in uh wealthy areas where the schools are pretty good, the existing government schools, um there's not much incentive to change. Um and
The basically uh so for example, in Palo Alto, California, there's no charter schools.

But in East Palo Alto, which is quite poor, right next door, there's a bunch of charter schools because the parents are desperate for change and options. So the charters have really focused on the lowest income kids because they um you know don't have great government schools and they're willing to take a chance and try
the new charter school. And some of them have of those charter schools have worked out fantastically.
That's awesome.
If you could shadow one CEO for a month, who would it be?
In the old days for me it was Jeff Bezos, um you know, but now he's retired. Um so yeah, probably would be Jamie Diamond at this point, since he's still active and such a broad intellectual. And uh it'd be fascinating to sort of uh you know be on his shoulder for a week.
I think he's a he's a one of the
He's well known, but also underappreciated, um, for all the things he's done and all the crises he's managed through in banking and
uh he's becoming a lot more vocal too, which I think is a good thing.
Whether you agree with his vocalness or not, I I do love the fact that uh CEOs are becoming more vocal about things that they're passionate in. They feel like they can
Share their opinions now.
Yeah.

What's the biggest misconception that you think other people have about you?
I really don't know that they have any misconception, uh, or I'm not confident of what their perception is.
I would say for now I'm focusing on turning around this cool ski area as a passion project and making it uh, you know, this uh fantastic and unique place, um, continuing the charter school work.
that helps uh you know get kids more opportunity. So
Um I would say if people have opportunity, it's that I'm trying to do things that are a balance of fun and good. Um and uh, you know, powder is ninety percent fun and ten percent good, you know, and and the charter school work is
thirty percent fun and seventy percent good. So it's a a range of different um projects that way.
You said one of the philanthropists you admire is Bill Gates?
For sure.
Why is that?
Um his basic approach is a technocratic approach to human welfare, to sort of sit down and try to think, okay, what are the causes of human misery um and how do I knock them down one by one and take bold ambitious bets, um, you know, curing disease, many other things, uh, energy
Um so very long term oriented. He'll work on uh
Give you an example. There's a uh a terrible virus that affects cassava in Africa. And cassava is like potato, but it's the main crop, main calorie crop of many countries and people. Um, and this virus is continuing to spread, um, maybe naturally, maybe through climate change.
And um he's been working for more than a decade uh to find genetically modified um variants that don't suffer from this virus. Um and they're now in field trials, okay. And the I was at one of the field trials recently, and it's stunning. I mean, you know, basically the the plants with this um
a genetic modification don't get the virus, and instead of getting a ten or twenty percent yield that a farmer gets because the virus has taken eighty or ninety percent, they get a you know a ninety five percent yield. So it's like a five or ten times more food produced.
Okay, but the like the foresight, you know, that uh Bill's team had to have to figure out what to back, you know, early.
Is amazing. So that kind of deep science, um uh for again uh improved human welfare is very inspiring.
When you were running Netflix and pure software
How did you think about
I don't wanna use the word balance, but it's probably the one most people understand between
Running a business.
being ambitious, being all in on that, also family, friends, health.
all these other competing things for your your time and attention.
Um yeah, I think of it as work life integration when you have uh uh a bad example of work life integration is pulling up your phone in the middle of dinner with your family. Okay. Um and a good example is uh, you know, you might come home at five thirty and
And cook dinner and hang out with your kids and then at eight, you know, maybe they're watching T V and you go do an hour or two of work. So the flexibility of what modern technology offers.
Provide you an opportunity to do
uh great integration. Another would be while you're running listening to a podcast. Okay. So there's a you know a bunch of clever life hacks to improve integration because we most of us want a great family life and a great professional life.
Um, and when you're into the balance metaphor, it's sort of more of one, less of another, it's zero sum in the in the metaphor. And I think that's unsatisfying. You know, there's a degree of truth to it, but it's unsatisfying. And so it's better to think of it as how do you improve work life integration.
where you have uh again a great professional life um and a strong family life.
The ones that get, you know, pushed to the side are sort of, you know, how much friendships do you develop between again?
depending on your family situation between family and work, that could be pretty consuing. So that tends to get less. And sometimes, you know, health and diet and exercise uh do. But of course, as everyone knows, if you put some time into that, you'll be better at the other things.
Are there things that you gave up that you regret in the pursuit of your goals? I was talking to Brian Halligan about this on the podcast.
And he said, look, I was focused on HubSpot. That was my
Baby that got all, you know, ninety percent of my attention.
And I was like, Well that's interesting, right? Now looking back do you regret and he's like not at all. I don't regret.
that at all. If anything, I probably spent too much time, you know, uh with friends and family and I should have spent more time on the business. Like how do you think looking back now about how you integrated all of these different things and if anything you would change?
Yeah, I mean I don't
Have any big regrets. I'm glad uh that I retired at sixty two. Um, and I think oh, should I have done it at fifty five and had, you know, more uh of life in this new kind of multifaceted state versus the obsessive state. Um but uh it was I loved
my twenty five years on Netflix, it was fantastic. Um and uh I'm so happy that uh Greg and Ted are doing such a good job on it and and enjoying it. Um so it's all coming together. So uh I don't I can't think of any, you know, significant lessons or regret. You do have to feel your way along
And there there are a few people who work well Warren Buffett. You know, he does like one thing until he's ninety five, but uh I'm not really critical of that. It's not what I would want for my life.

But
I you know, uh it's up to him how he wanted to live his life.
You mentioned the word obsessive. Go deeper on that.
Well, I think um to be world class at anything, um whether that's uh sports, cooking
Business.
You have to be pretty maniacal and obsessive and intense, and you know, it's not easy. So I don't want to kid anyone that um it's an easy life. You have to definitely, you know, push hard and
um and give a tremendous amount of energy, you know, as I did to Netflix. Um, which is part of why it's great
at sixty two to hand it over to some, you know, people who are a decade younger and and they're super obsessive now.
I wanna come back to culture for a sec. There's one question I didn't ask. What was the keeper test and how did it apply?
Um so the keeper test is a Netflix shorthand um for uh asking yourself if one of your employees were quitting.
How hard would you work to keep them?
Um to stay.
Would you try to change their mind?
And if you wouldn't, then you should proactively give them a generous severance package.
and try to recruit someone who you would feel
that you would really try to keep them.
And so the typical employee test that people use is did they screw up enough
that they deserve firing. So they have to really fail to deserve firing. And we want to change that presumption to be, no, it's the people that you would fight to keep.
Those are the ones that you stay in. If someone is not in that, um, then you should give them a package and move on. And of course, you know, it the more nuanced one is you to have a conversation with them. Like I wouldn't fight that hard and, you know, let's try to change that and you know, try to
uh not surprise them and be honest with them, but it's shi shifting at the standard industrial model is like you nearly have to commit a crime to get fired.
Okay, as opposed to the athletes case, which is I think I can upgrade, I wouldn't fight to keep you. Um because you're fighting for a roster spot. Because I want to win the championship. Yep.
A pure
U IPO'd.
I think you went through five head of sales in five years.
What was that like and what did you learn from that experience?
Sure. Um pure software was like 91 to 97. Um and we uh went public in uh 1995, um strangely, the week before Netscape. Um so for one week we were the hot the hot tech IPO.
Um, but uh it was challenging. Um, you know, I didn't really understand how to run um enterprise sales. And so I kept picking the wrong person um that held us back for sure. We could have grown faster better and
be a more successful company if I had more of an adept hand um at enterprise sales. So we had incredible products because we we doubled our sales every year, um, despite the fact of turning over the sales team every year. Um so but again, if we had done if I had done a better job as sales,
We could have been even subs much more successful.
So I don't know, take uh like Atlassian in the modern era here, that's been a you know, phenomenal software tools company.
How did you know you had the wrong head of sales when you're doubling sales every year? Like that seems like a pretty good outcome, but you're like it's not fast enough, not enough velocity, or just the wrong fit.
Yeah uh
I mean, each case was a little bit unique. Um, but um and you know, it's possible that I made the wrong calls and I should have just kept the first one the whole time. So, you know, again, but it was my bad decisions, um, you know, either on the hiring or the firing. Um
in when this one area sales, whereas in this other area developing the product, uh, we were very shorthanded and we had a we had, you know, the hottest products of that time.
Was there a moment at Pure Software where you wanted to give up or you found yourself sort of like
Feeling sorry for yourself or what was that like and how did you get out of it?
Yeah, I don't think I felt um sorry for myself, uh, but I did feel like I was hurting the company back to these uh sales turnovers and back to caring more about the company than myself.
So I wanted the company to succeed more than I cared about myself. And so I I
twice I went to the board of and said, look, you should hire uh, you know, a CEO who's got a shorthand in sales and I'll do product and it's fine. And, you know, um and both times uh they rejected that idea. Um and it's like, yeah, you are making mistakes. They were click.
clear about that, but overall we'd rather um be investors in this company that you're doing than make that change. Um and for me it was a little bit uh it's like confession, um, you know, because I felt so guilty about those sales mistakes.
Um, that then, you know, offering my uh role um a sacrifice would sort of cleanse that wound and then uh get up and live to fight another day.
Do you think that there's a difference?
for the role of the board on a founder led company versus maybe a professional manager or non large uh
Founder, I guess, involved in the company.
You know, there's a lot of talk about that, founder led companies and not, and I'm I'm not sure that I
buy into that very much. There are some
very bad founder led companies. There's some very good professional led companies. Um, and there might be some correlation that uh founder led ones, you know, are extraordinary, but
Um, you know, Microsoft under Sajan Adela has done incredibly well. The most value out of any company ever, right? Sundar, P Sai. I mean, you know, it's like I'm not sure that it's like such a strict correlation. So I'm um thrill that Mark Zuckerberg's doing so well. Um, but I again
You know, there's lots of other companies that have other managers or leaders, and everyone's going to eventually.
Um, that do well. So do you think the role of the board is different when there's a founder?
as the CEO versus
A non founder CEO. You know, I um did a little Venture Capital in the mid nineties after Pure and I sucked at it. And so I would say I would I would defer to my venture capital colleagues who would comment to you professionally and thoughtfully.
Um, I I only know my one or two little board experiences and uh I would say I'm not that deep in this area.
Who's the best venture capitalist do you know from an investing point of view and identifying talent?
I you know, of the one I'm not that broad in the area, so I don't have a comprehensive view, but Ben Horowitz has always seemed to me um uh just phenomenal and um and uh the and he's never been on one of my boards, um, but just from watching and talking with him.
Is there a moment that stands out as a defining moment in your life?
No, I don't remember like any kind of Damascus Road experience where I suddenly change. Um, you know, I would say
I've always been open to new experience.
and try new things. Um, and I'm quite surprised that then I succeeded at business. I never really thought that much about business. Um and so I was content to try many things and I I did accompany Pure Software only because I got excited about a certain product and I needed to accompany to get that product out.
So I was always led by my passions and it, you know, worked out super well.
The
First product you got excited about was a foot mouse, was it not?
Well, that's true. I mean let's see, if we go way back
in middle school I was, you know, selling cinnamon sticks and things like that. Um, but when I was a grad student at Stanford
uh in the mid eighties, um, I thought that the big idea was to have a mouse that was controlled by your foot so you could keep your hands on the keyboard and you could type and and point at the same time. Um and I almost dropped out of school to do it. I got so excited about it and, you know, re s did a bunch of research on the original mouse and how it came to be and this kind of thing.
But um, once we started using the prototypes, two problems really became glaring. One is it's very dirty on the floor. So after like three, four days, it was very gross cleaning it out. And then two, your leg cramped and it just did not have the uh fine muscle control that your hands have. Um and so if you tried to do any fun.
fine movement with a mouse, um uh it was a big problem. And so luckily, uh I did not go forward with that idea.
Uh I wanna wrap up. We always ask the same question, what is success for you?
I would say success is having a positive impact on other people. Um and that could be uh, you know, through uh religion, that could be through a nonprofit, that could be through government service, that could be through business.

Um, but um, you know, doing good for others would be my fundamental core definition of success.
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