Netflix CEO’s Leadership Failure

Reed Hastings…Please wake up!

The CEO and co-founder of Netflix, Reed Hastings, appears to be missing his wake-up call. He’s hitting snooze. He’s not listening to any of it.

Sure. He’s brilliant, and a forward-thinking execution-focused visionary. And what an impressive track record until recently! But his failure to listen to customers, and shift gears with them as he drives into the future with them, is ego-driven. He needs to apologize and start partnering with them.

Ever tried to shift gears from first to fifth? Your car will stall. This is essentially what Reed has done. It’s like he saw into the future that his car would eventually get into 5th gear, so why wait? “Fifth gear is the future, so I’m making the future now!” he must have thought. Now Netflix has shifted gears prematurely, and the engine is stalling badly. And Reed Hastings is not taking personal responsibility or apologizing. He’s not asleep at the wheel, but in a sort of trance.

For the sake of your own leadership development, let’s look at his leadership failures through the REAL Leadership perspectives.

Results

  • His recent actions have caused Netflix to miss their projections by 1,000,000 (one million) subscribers.
  • Quarterly results are way off.
  • The growth rate is dropping dramatically.
  • Netflix’s stock is crashing.
  • Competitors are gaining ground.

Engagement

  • What’s Reed’s impact on people? He’s pissing off customers, loyal customers.
  • He’s getting negative reactions to the Quickster brand.
  • People are frustrated that Quickster and Netflix websites won’t have any integration.
  • People have lost confidence in him, and he’s losing credibility further with disingenuous apologies.
  • Reactions to his letter (from 25,000+ people on the Netflix blog) show people believe he’s not interested in making things right.
  • People don’t feel he’s really hearing them. They feel he knows better, no matter what.

Actions

  • He’s made some very bold moves recently, by:
  • Rebranding Netflix’s DVD service as Quickster.
  • Charging twice the amount for those who want what they had before: the option of DVDs by mail and streaming.
  • Sending this letter to all Netflix subscribers (below).
  • Not apologizing for his errors. (He’s apologized for people’s feelings, not for his actions; see the half-hearted apologies and explanations, or rationalizations,  in his letter below).

Leader

  • He’s a very future-focused guy. That’s who he is. But, now he’s losing a grip on where the present reality lies.
  • He’s smart, really smart. But, he may think he’s smarter than everyone else, including his customers.
  • He sees the trends in the customer data so clearly, but he’s trying to get so far ahead of them, that he’s leaving customers behind.
  • He’s driven, and willing to take big risks. But his timing is off and he’s not listening.
  • He’s rationalizing his failures, and his ego is in the way. “It can’t be ME who’s to blame” is the tone in his email (below).

Here’s his half-apologetic (or half-hearted?) email he sent me. Judge for yourself.

—–Original Message—–
From: Reed Hastings, Co-Founder and CEO of Netflix <info@netflix.com>
To: curt***
Sent: Mon, Sep 19, 2011 3:53 am
Subject: An Explanation and Some Reflections

Dear Curt,I messed up. I owe you an explanation.It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology.Let me explain what we are doing. For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.So here is what we are doing and why. Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies. I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies.

One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges.

We will let you know in a few weeks when the Qwikster.com website is up and ready. For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly. Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

 

So, for those of you who want to LeadPeople effectively, learn what not to do from Reed’s recent failures.

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About Curt Buermeyer

I am the founder and president of LeadPeople. I hope you enjoyed this post and encourage you to subscribe to receive these in your inbox. Thanks for visiting!

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