At an industry conference, Netflix chief executive Reed Hastings reminds his tech industry peers that customers are as important as vision.
My first post this week from the Code Conference, the re-named tech-industry shindig hosted by Kara Swisher and Walt Mossberg in California, was about the truth. My final update is about humility.
Specifically, it’s about the humility of Reed Hastings, CEO of Netflix NFLX . Hastings is one of the Internet industry’s leaders because he has run Netflix through good times and bad as well as through triumphs and missteps.
Asked to discuss one of the company’s most notorious goofs, the 2011 effort to re-brand the Netflix DVD business as Qwikster while raising prices 60% to streaming-plus-DVD customers, Hastings re-told a valuable story of management arrogance. It was born of good intentions. Hastings explained that Netflix wanted to avoid “dying with DVDs.” His management team was hyper-aware of the efforts of high-quality leaders at Kodak who tried and failed to save the photography giant. They were determined “to be so aggressive” in addressing the death of DVDs “that we wanted to make our skin crawl,” Hastings said.
Voluntarily making one’s skin crawl is an interesting concept. Hastings is basically saying the typical successful manager is more prone to incremental change in the face of a strategic inflection point than to radical change. There was — and is — no doubt that Neftlix faced an inflection point. The question, in retrospect, was how to play it. Hastings noted that customers don’t care about a company’s 10-year strategic vision. They were far more upset at facing a price increase during bad economic times. Netflix thought a $6 bump from $10 to $16 was no biggie. Customers saw it otherwise. “A 60% increase in the middle of a recession was arrogant,” Hastings said.
Netflix made it through its crisis by apologizing, unwinding its strategic plan and moving on. Hastings said he learned valuable lessons about being in better touch with his customer — a factor in business as important as having a strategic vision.
Some other nuggets of interest from Hastings:
- A third of the company’s employees are in Los Angeles now, tending to Netflix’s growing original programming business. When Netflix’s top guy in Hollywood, Ted Sarandos, opened the office a decade ago he was practically by himself. (Season 2 of the hit television series Orange is the New Black debuts June 6; Hastings previewed a trailer that was so violent and tense that it made me nervous.)
- Hastings said the company captured detailed — and negative — data on the tough-to-watch opening scene of the very first episode of the series House of Cards that involved a dog. The scene was so brutal that viewers switched off. Netflix knows this because of the nature of Internet streaming, whereas a broadcaster would have only anecdotal evidence of viewer reaction. Netflix informed House director David Fincher of the reaction, and his response was, “Don’t ever tell me that again.”
- Hastings has no interest in starting a pay-for-view or download business, saying it doesn’t meet the standard of an “un-met need.” Translation: Comcast CMCSA and Apple AAPL , respectively, have got those models nailed.
Previous coverage of the 2014 Code Conference from Fortune: