Letter #38: Reed Hastings (2010)

2010 Netflix Strategy Deck

Hi there! I go by KG, and I love studying the history of business and investing. I’ll be sharing some notes from one Investor/Shareholder letter per weekday (mostly from my compilations) here.

Everybody knows about the infamous 2009 120+ page Netflix Culture Deck (now the Culture Memo). But did you know that Netflix CEO Reed Hastings also previously published a Strategy Deck in 2010?

In a slight detour from my normal letters/annotations, sharing some of my favorite slides/takeaways from this amazing deck (similar to my Stan Druckenmiller notes).

For more on Reed, check out my Reed Hastings compilation under Creative CEOs.

Slides

Financials

  • Pretty graphs — great numbers

  • For reference — Netflix was founded at the end of 1997. Broke even in 6th year

Market

  • Hastings saw the limits of the DVD market — while competitors sold a dual-pronged approach of DVD+streaming, he shifted focus entirely to streaming (good move)

  • This was very gutsy at the time — DVDs were the main format, a decent cash cow, growing solidly — the fact that he pivoted to pure streaming took guts

  • Look for markets that can sustain growth for at least 5-10 years

  • 37% growth, compared to 14% the previous year — TY streaming

  • Still licenses a lot of content — but now the primary focus is on creating its own

Distribution

  • Multi-platform — distribution matters, partners matter, compatibility matters

Strategy

  • Great playbook

    • Democratize Innovation — don’t depend on a single genius (Buffett: “invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”)

    • A/B test — let your team members compete. Don’t let monopolies exist within — leads to complacency. Apple is famous for pitting internal teams against each other. They’re doing pretty well.

    • Don’t ship features unless it’s a noticeable improvement — results in steady satisfaction commitment. Lowkey reminds of Steve Jobs’ We Don’t Ship Junk

    • Take care of your customers — happy customers = return customers = happy company

  • Andy Gove — “Only the paranoid survive”

  • Pay attention to your competitors — Innovation is key, but don’t let it cloud your vision of the field. Know your industry and how you fit in and stand out

  • “Stay Focused and Run Fast”

  • Push streaming and increase content

  • Focus on UI — especially on TV (as of 2020 should be more focused on laptop and soon phone)

  • Recommendation system <3

  • Still mostly avoids PPV, ads, sports, news, user-gen: HOWEVER, they have chosen to focus in on niche communities who become extremely loyal

  • Golden Rule: Happy customers = Happy company

Vision

  • Dream big

Wrap-up

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