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At this altitude, I can run flat out for a half mile before my hands start shaking.
4:53
Can I ask you a personal question?
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No, I just need my broken time.
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What if I did the opposite?
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I'm a cybernetic organism living tissue over a metal endoskeleton.
5:12
Hello boys and girls, ladies and germs. This is Tim Ferriss.
5:14
Welcome to another episode of The Tim Ferriss Show, where it is my job to interview and deconstruct world-class performers.
5:18
How do they do what they do?
5:21
My guest today is Reed Hastings, r e e d.
5:24
Reed Hastings became executive chairman of Netflix in 2023 after 25 years as CEO.
5:30
He co-founded Netflix in 1997.
5:34
In 1991, Reed founded Pure Software, which made tools for software developers.
5:39
After a 1995 IPO and several acquisitions, Pure was acquired by Rational Software in 1997.
5:46
Reed is an active educational philanthropist and served on the California State Board of Education from 2000 to 2004.
5:52
He is currently on the board of several educational organizations including KIPP and Pahara.
5:59
Reed is also a board member of City Fund and Bloomberg.
6:01
He received a BA from Bowdoin College in 1983 and an MSCS in artificial intelligence from Stanford University in 1988.
6:11
Between Bowdoin and Stanford, Reed served in the Peace Corps as a high school math teacher and you can find him on Twitter and LinkedIn as Reed Hastings, easy to find.
6:19
In this conversation we cover a lot of critical decisions, critical mistakes, lessons learned, first principles behind many of the important decisions made, culture decks, we talk about farming descent and much more.
6:36
It's a very strategic, very tactical, practical conversation.
6:38
So, without further ado, please enjoy a wide-ranging conversation with Reed Hastings.
6:49
Tim, so exciting to be here. I'm excited to have you.
6:51
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.
6:57
Yeah, wow, that's my great-great-grandfather or something.
7:03
So long ago, one of the books that inspired me was a biography of Alfred Lee Loomis titled Tuxedo Park.
7:09
So, if you would indulge me and the audience, would you be willing to share just a brief sketch?
7:14
My mom's paternal grandfather was Alfred Lee Loomis and during World War II, he played a role in developing Loran.
7:25
The L is supposedly Loomis, but actually it was long-range, but he was like a early Bill Gates type.
7:33
I mean, not as successful, but like sponsoring his own science and lab.
7:36
It was sort of the gentleman scientist era in the 1940s, but I never met him.
7:40
And he also, this is just 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.
7:57
You know, it's like the guy who did Big Short and, you know, those kinds of things.
8:02
If you guess right on a big movement of the stock market, it's of great benefit.
8:06
All right, we're going to hop a little further forward to after college.
8:11
We're going to bounce around.
8:12
This is sort of the momento style of my brain, so I apologize in advance, but I believe you found yourself in Africa, and you can certainly flush this out, and ended up hitchhiking quite a bit with very little money.
8:28
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.
8:38
That word gets thrown around a lot.
8:40
People sometimes don't define it very well for themselves, but you seem to perhaps frame it differently than some folks.
8:46
I'd just be curious how you would speak to that.
8:49
I think I've always been pretty risk-tolerant, you know, spent a bunch of college hopping freight trains and traveling around.
8:57
I spent a couple years as a math teacher in Africa, and then hitchhiking around on every vacation.
9:03
So, that's always been very comfortable for me, and I've been lucky that nothing bad has happened, so my uh stays in jail have been short.
9:11
And I think all of that very much contributed to my entrepreneurial success once getting into business and tech, because I wasn't afraid to fail.
9:21
Why weren't you afraid to fail?
9:23
I think a lot of it is random genetics.
9:26
You know, you either have a propensity to be cautious or a propensity to take risk.
9:29
So, I don't think it's any great character thing I developed, you know, it's more like some people are very risk-tolerant, and I think it's wired randomly into our DNA.
9:38
So, the reason I asked about risk is that there must be some genetic stock component. I agree, right?
9:46
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.
10:00
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.
10:12
Could you just expand on good processes versus bad processes?
10:16
For me, free solo is bad process because a mistake is the end of your life.
10:20
So, you know, 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.
10:29
So, as you mentioned, Bezos calls them one-way doors.
10:31
If there's one-way doors, then they value it very carefully.
10:35
If it's a two-way door, they're willing to get in and experiment and try.
10:39
And I think that's a great business philosophy. I share it.
10:41
So, generally, good process tries to help you get more done.
10:46
For example, a weekly meeting where everyone shares context and moves forward as opposed to just randomly getting together.
10:52
And bad process is the stuff that tries to prevent error.
10:56
Let's, you know, check everything cuz it just gets in the way of creativity.
11:00
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.
11:12
The interview that I listened to you recently between you and another Reed, 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.
11:25
And I was hoping to hone in on a few of them, a few of the the lines or the tenets in that, and just to get your explanation of the Genesis story, like where these came from.
11:37
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?
11:47
big picture is I'm in the camp that culture eats strategy for lunch.
11:49
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, it's culture runs through all of that.
12:01
How do you get human beings to work well together and accomplish amazing things?
12:05
And one of the aspects of that is being around other incredible performers.
12:10
So, if you think about a sports team, if you want to win a championship and you got 11 slots, you know, you 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.
12:24
So, our model is built around that, and so we said adequate performance, i. e.
12:29
good enough, gets a generous severance package.
12:32
And the reason we wanted people to focus on that is how different it was, cuz normally adequate for work is good enough to stay.
12:40
And we said, what if a place was filled just with amazing people, and you had that kind of talent density?
12:48
And that focus on culture through these three very different organizations.
12:53
So, my first company, Pure Software, was super geeky software enterprise sales.
12:58
Second one was film and television streaming around the world, and third is Powder Mountain.
13:02
You know, 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.
13:17
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 bulk.
13:29
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?
13:40
had 50-100 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.
13:49
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.
13:57
And so we realized we should really give it to all candidates, but if you do that, it's pretty much public.
14:03
And of course it quickly became public.
14:07
And at first, you know, 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.
14:17
And those who wanted job security as their main focus were not into us.
14:22
So it really helped people self-select in a positive way.
14:28
What were some of the line items that quickly helped people to select out or put a different way, like what were some of the principles that caused the strongest reaction in folks?
14:44
you hit one, great performance.
14:44
The other is probably team not family.
14:48
And so, you know, family has been the primary organizational unit for 10,000, 100,000 years.
14:54
All countries were organized around families, kingdoms.
14:59
It's only recently that we had, you know, democracies.
15:00
And certainly most companies have always been family-based companies.
15:05
So family units are how we think and in a family, what we admire is incredible loyalty.
15:11
You know, your brother goes to jail and you stick by them, right?
15:14
Parents do anything, you know, and you maintain that love and lack of judgment.
15:19
However, in a company, you know, a family can be kind of dysfunctional.
15:24
Think of, I don't know, the Ozark.
15:28
So, you know, that's one crazy family.
15:28
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 like over temporary either company performance or individual performance.
15:46
But ultimately, we were about performance.
15:49
Just like a championship or wanting to be championship sports team.
15:56
This is going to seem like a a very It is, I suppose, very tactical question, but the generous severance that we just talked about a second ago.
16:05
My understanding is that's 4-month minimum and you that you did that at Netflix from the very early days.
16:11
Could you explain why that makes sense?
16:12
Well, the people who were on our team were trying really hard.
16:17
And they may not make it, but they've done nothing wrong.
16:19
So, we wanted to make sure that they could land on their feet and have a generous severance package.
16:25
And of course, that's US standards there.
16:27
So, they're higher in Europe because to be generous in Europe is higher than in the US.
16:31
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.
16:43
And it does it also sort of a 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 4 to 6 months or however long anyway.
16:57
Yeah, that's a great insight.
16:57
I mean, managers generally are people.
16:58
They like people and it's hard for them to hurt people.
17:02
And it does hurt to let someone go.
17:04
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.
17:17
So, I for you to a little bit about Pure Software and some of the lessons learned.
17:21
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.
17:32
And that harkens back to what we were discussing earlier about the good process versus bad process.
17:35
And you've spoken about and written about managing on the edge of chaos.
17:41
And so, I suppose I'm wondering how you find the sweet spot between those two.
17:45
Cuz I would imagine also at Netflix, there are certain processes in place as a company scales.
17:51
But could you start with Pure Software?
17:53
In Pure, I imagined it as a big semiconductor plant where you're doing process innovation and yield management.
18:00
And every time we did something wrong, we put a process in place so that that error wouldn't happen again.
18:06
And we did execute very well in one narrow market, but we lost the sort of creative inspiration.
18:11
And so, when Java came along, you know, then the company was much weaker and we weren't the leader in that.
18:17
And I realized, oh, we were micro-efficient, you know, with the current business.
18:22
But the real risk to most businesses the market shifting.
18:26
And so, we should optimize if we wanted to optimize for the market shifting, we had to be to manage on the edge of chaos, to be super creative without tipping into chaos.
18:34
Okay, the chaos really doesn't feel good where, you know, the products don't work, the customers aren't billed.
18:39
I mean, you know, all kinds of bad things there.
18:41
And so, if you're going to run loose but not be chaotic, then you have to have really high-performance people.
18:46
That's why that becomes the key part.
18:51
People who get the overall context of what's going on and don't need a lot of rigidity to get good results.
18:59
Okay, so you mentioned a word that I'm going to hit on in two questions, which is context.
19:03
So, we'll come back to that.
19:06
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, right?
19:17
You can do that, but ideally you would also be increasing the likelihood of of somebody sticking as a high performer within your culture.
19:26
And I've heard you speak about doing references well, which means number one, you're sort of cold sourcing those references.
19:33
Could you speak to that and also how you do reference checks?
19:37
Because it seems like at least when I've I've done very little hiring compared to you, but people are very afraid in a litigious society of getting themselves into trouble.
19:45
So, how do you navigate doing a reference call and uh how do you navigate that?
19:51
start on LinkedIn and look for mutual connections.
19:54
And the key is that the reference has to be closer to me or someone I know than to the subject.
20:01
Otherwise, if they're closer, if it's the subject's brother, I'm not going to get the depth of reference.
20:04
And most of the time I'm able to find a couple people that worked with them at such and such a time.
20:11
And then most of the time I'll try to do a short zoom.
20:17
And when someone's on zoom, they're much less likely to lie to me.
20:21
And I can ask a couple questions and they don't feel like it's being recorded.
20:24
So, it has a creates a an appropriate intimacy, but also a sort of semi anonymity.
20:31
So, that's one aspect, but it's just uh really important and hard.
20:34
And then we'll again use lots of different ways to try to find people that worked with the person before and get to them directly. Context.
20:44
So, context versus control, let's just say.
20:47
And maybe you could use you could certainly use Netflix, but you could also use Powder Mountain. How do you set context?
20:52
What does that mean for someone who's heard the word?
20:54
Obviously, they know what that means. Yeah, sure. Yeah.
20:57
Well, you know the typical metaphor we have for companies as industrial companies, right?
21:03
We've had 200 years of the industrial revolution, factories, you make things, the boss tells everybody what to do, and you're really trying to drive consistency in process, and that's how we have, you know, a million doses of antibiotics that are good and and airplanes that are mostly good and that kind of thing.
21:20
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.
21:28
We say, "What are we trying to do? We're sparking wonder. That's our core thing." How we going to do that?
21:34
Create this unique place with a mountain recreation and art and beauty.
21:38
So, you know, we're setting context in that way as opposed to telling employees, you know, when you see a guest smile like this and say these words.
21:49
I don't know, something very reductionist in that way.
21:50
We tried to motivate and educate our employees that it's all about that joyous feeling of wonder and how do we spark it?
22:00
And so, again, that's an example of setting context versus control.
22:07
And letting them make the sort of day-to-day, week-to-week decisions about how they Then then they're both empowered and they use great judgment, you know, about things cuz they understand how we're trying to change the guest experience, right?
22:18
Skiing has gotten so crowded over the last 20 years it's less joyous, and we are the distinctly uncrowded mountain.
22:25
That's our counter positioning.
22:28
And that's why that context is important.
22:32
I can second that having just come off of President's Day weekend. Yeah.
22:37
And and at Powder it was wide open and you know, it's really just that we don't take the big passes, the Epic Icon passes.
22:45
And that's what keeps it uncrowded.
22:48
That is a huge huge advantage.
22:50
I want to talk about something that applies, I mean, certainly to business, it applies in a lot of different areas, and that is I suppose what we'd call radical candor or transparency.
23:00
And is it true that at least some iteration of that came from marriage counseling?
23:07
Patty and I've been married 34 years, so we're very fortunate.
23:08
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.
23:19
And I would say things like, you know, family's the most important thing, whatever the phrases are, and then I would stay at work late.
23:24
And he's like, okay, here's the situation.
23:26
You're going home for dinner.
23:28
This employee walks in with this crisis. What do you do?
23:30
And I'm like, oh, that's easy.
23:32
I deal with the employee crisis.
23:33
And I'm like, okay, so it's like pretty clear that you're not doing family's the most important thing.
23:38
And so I was a hypocrite.
23:38
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.
23:46
And I was less of a hypocrite for Patty and a little more easy to tolerate cuz I wasn't saying things like family's the most important and then I'm not showing up.
23:58
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?
24:13
And that misalignment with how we act and what we say can be very hurtful.
24:16
And so, since then I've been really committed to trying to reflect and say the honest thing.
24:24
And then, for example, the team not family or adequate performance as an example. Few follow-up questions.
24:31
So, with let's just say in on the personal side, the work crisis versus family time.
24:35
A lot of people listening certainly will have experience with some degree of tension between work and personal life.
24:43
What type of guardrails did you set up or conditions so that you wouldn't continue to make that mistake?
24:51
One of the best things I learned from John Doerr was setting a budget.
24:54
So, so many nights a week I would have dinners.
24:58
So, it varied at different phases, but let's say in one phase it was 11 nights.
25:02
So, I had an 11 night budget.
25:04
And then if Tim Ferriss calls, I might say, "Okay, I'm going to use one of my 11 slots or not."
25:12
But I would really stick to the 11 slots.
25:13
And by having a strict budget that you stuck with, it was easier for the spouse because it wasn't an unlimited thing.
25:20
And it was easier for me because then, you know, I pick and choose and not say yes to a bunch of other things which might have been nice, but weren't essential.
25:28
And again, different people's budget will be different amounts, but by having that explicit agreement, I think it's pretty helpful.
25:38
You don't strike me as someone who has trouble saying no.
25:40
Maybe you are, but would you then, let's just say number 12 comes in, invite number 12, and you say no.
25:47
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 no?
25:53
Not generally, I would, yes.
25:55
I would say I just can't make it as if I had a big conflict with some other meeting.
26:01
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.
26:10
For instance, to give credit where credit is due with Reid Hoffman and his class related Blitzscaling when you had that conversation.
26:19
And he said, "Yeah, I reached out to Reid, this Reid sitting in front of me."
26:22
And I think he asked you to be on a board or something, and you're like, "Sorry, I focus on education."
26:24
How do you phrase those declines?
26:26
Not to get too much in the weeds, but I am curious cuz this is something people struggle with.
26:31
Yeah, I mean, I've always thought that people who really focus on a few things will get the most done.
26:35
The problems of society are ones that our parents and grandparents couldn't fix.
26:42
So, they're like all very hard.
26:42
And if you make, you know, some material contribution in one or two areas, that's remarkable.
26:48
And I think what hap- can happen is people get drawn into 20 different things and they did then they don't make much of an impact in any of them.
26:58
And you know, once in a while you get an Elon Musk who can do magically wide number of things, but that's very rare and it's not me.
27:05
And so, to answer your question of how do you say no, as a really I just honest about it.
27:11
I really can't do that cuz I want to focus, let's say, on education or Powder Mountain or whatever the thing is.
27:19
Coming back to the radical candor or the transparency.
27:23
There are very few people I imagine in the interview process who are going to say, you know, I actually prefer to be quietly deceptive in a harmless way.
27:29
Like they're all on paper they'll agree.
27:31
And my question is, how do you I think this is a term you've used, farm for dissent?
27:37
Like how do you actually help encourage that transparency?
27:42
During the hiring process, I think we try to just listen and be in intuitive and try to figure out which people to give a shot at.
27:49
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?
27:58
Normal we learn deference.
28:00
My job is to please my boss, you know, as opposed to we want people to feel my job is to help Powder or Netflix or Pure Software grow.
28:10
Sometimes if to help them grow, I've got to be willing to argue with my manager. And that's okay.
28:15
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?
28:31
I would regularly, you know, every 18 months or so do that with, you know, 50 top executives and have them write down what would be different.
28:38
We would be in games, out of games.
28:40
We would be in porn, out of porn.
28:42
We'd be in sports, out of sports.
28:45
100 different business decisions, what would they do different?
28:49
And that was an example of farming for descent.
28:54
When you were going head-to-head with Blockbuster back in the day. mailing DVDs. That's right.
29:00
So, they come out and they decide to launch their attack.
29:05
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 counterattack that ranged from banner ads or advertising to selling used DVDs.
29:17
And then I don't know if it was several months later or a year later in in retrospect, none of those things really contributed to the success that you had, the victory that you had over Blockbuster.
29:31
How did you take that learning, meaning if if we just doubled down on our core competency, we would have probably beaten Blockbuster sooner.
29:37
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 a kid, there was a dishwashing soap, Crystal maybe, and supposedly it cleaned better because it had green crystals in it.
29:56
And it's an example in human behavior of assigning meaning or causality to something.
30:04
It wasn't very effective just say, "We're a great soap."
30:06
They had to say, "We're a great soap because of the green crystals and we're the only one that has these green crystals, you know, spread throughout the dishwashing flow."
30:14
So, when you're got a big competitor battle and all your employees and investors are wondering, "Why are you going to win?
30:21
How are you going to win?"
30:22
We say, "Well, we got to talk about the green crystals."
30:24
And we didn't understand it at first, but we would do various things that were kind of irrelevant like selling used DVDs.
30:30
And in hindsight, it's because we ourselves needed to believe in the green crystals, okay?
30:38
And so, there's a temptation in all management teams to like focus on shiny objects in that way as opposed to just focus on we have great so in that case.
30:46
So in hindsight what we did is wow, we really got a we spent 20% of our effort, not 80, but 20% of 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.
30:59
So that would be DVD shipping times, reducing DVD breakage, better envelopes, you know, making the the core work better.
31:09
And I think this is on the Netflix website.
31:11
My team sent this to me because I was asking a number of follow-up questions on the 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.
31:25
I mean it's very very explicit.
31:26
To disagree silently is disloyal. Yeah, okay, there we go.
31:31
In the early days, let's just say sub 100.
31:33
Let's maybe maybe it's sub 50.
31:38
Which of the principles in that culture doc do you think were most valuable to have permeate the smaller organization?
31:47
And it could be the ones you mentioned.
31:49
is high performance, team not family cuz 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.
32:01
So you kind of talent farming in that way and specifically the density of talent.
32:06
Almost every organization has some fantastic people.
32:08
It's an incredible feeling when everybody is amazing.
32:14
So part of that is hiring, part of that is firing.
32:16
I mean there's a lot in between, but how did the keeper test What is the keeper test and how did that come to be?
32:22
When I was maybe 7 or 8 years old, I caught a large fish and my dad said, "That's a keeper, Reed."
32:28
So I always remembered that and when thinking about this test, so the test is if someone's thinking about quitting and you know, going to a different firm, would we try to change their mind to keep them?
32:40
Or would we say, "Bummer, but go ahead."
32:45
And so, we wanted to fill the company with people that we would fight to keep.
32:50
And so, that's the keeper test.
32:50
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."
33:04
So, I'm going to ask a maybe a mundane question, but well, a few.
33:06
One is how frequently was that done as an exercise for the managers in the company?
33:12
And secondly, would you fire someone and then find a replacement or get the search going for a replacement and then fire the person?
33:21
I know it might seem like a really kind of nitpicky question, but I'm just curious.
33:25
Generally, we would let people go and then do the search cuz you want to the search to be open and we want to treat the person with respect.
33:31
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, okay?"
33:39
Which is it's difficult, but you know, let's be direct and thoughtful and supportive on it.
33:43
And then, you know, it's up to managers how often they might think about it once a quarter, you know, "Would I really fight to keep that person?"
33:52
You know, and then it's a degrees, right?
33:53
Of "Oh my god, I'd pull out all the stops, you know, I'd be like that person is the most incredible."
33:58
To you know, "Yeah, I think I'd fight to keep them some, you know, and that's fine."
34:02
Versus the big one that done covers is, "No, if the person left, I'd be fine."
34:07
And that we want to make sure that person, that manager, gives that person a severance package.
34:14
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.
34:26
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.
34:32
I've never read that one.
34:34
What are some of the things that really stick out to you in those first 80 pages?
34:38
where he really does the role of self-discipline, sort of rinsing the cottage cheese for an athlete.
34:44
And the important Wait, what does that mean? I'm sorry.
34:46
Someone who's so manic about their diet that they rinse the cottage cheese or something, you know, with the milk way, I don't know.
34:53
So, for me, this was when I was 32, it came out.
34:57
And it was the first management book that made me feel like I could succeed because it wasn't, you know, like Larry Ellison or these huge personalities, you know.
35:07
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.
35:19
So, a lot of fundamental precepts which gave me permission to be myself and not try to be Mr.
35:25
Charisma, flamboyant, which is kind of the CEOs that you read about.
35:31
So, I think that's why it was so impactful.
35:35
What are, 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?
35:47
Probably the Jim Collins-oriented stuff is good.
35:49
Uh Patrick Lencioni's, you know, Five Dysfunctions of a Team, The Advantage, those are excellent. So, those are the ones.
35:57
And then, you know, on the more human side, Sapiens, Yuval Harari's book of sort of the meaning of life and understanding the big picture, you know, is extraordinary.
36:08
Do you read much fiction?
36:08
I know you read the and liked The Overstory, I believe.
36:12
Yeah, but no, I don't read that much.
36:12
I tend to do fiction on film and series, and then I'll do biography.
36:16
Although, I'll I'll watch I just watched a Helen Reddy biography, I Am Woman, so, you know, I like a lot of nonfiction both in reading and in film. And in film.
36:28
Any standouts in recent memory?
36:30
Well, I again two days ago I watched a five-year-old biopic of Helen Reddy, Australian woman who broke through in New York and LA.
36:38
You know, had an incredible number of hits in the '70s and '80s, including I Am Woman.
36:41
So, it's a super well-done biopic.
36:51
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38:01
So, we could talk about and certainly I'm open to it, but you've had a lot of big wins.
38:05
You've had a lot of highlights.
38:07
I'm wondering if you have any favorite failures, and I'll put that in quotation marks, from Netflix days or before.
38:16
And 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.
38:27
I get a little bit of irony in favorite failure.
38:28
I would say our Quickster episode at Netflix.
38:32
So, we were growing in DVD and streaming since 2011 and we realized the future was streaming.
38:38
Um the customers currently were doing DVDs and we decided to split into two companies, one called Quickster to do the DVDs and the other Netflix to do the streaming.
38:49
It was roughly the right idea but 5 years too early.
38:51
The customers were screaming mad because they mostly used DVD.
38:56
Streaming at that point you couldn't get to the television.
38:58
So, it was really just like streaming to a laptop.
39:01
So, it wasn't like a very great solution.
39:03
We didn't have that much content.
39:05
And what I learned about it was sometimes you can be so strategic, you know, in long term that you don't bring along the customers with you.
39:13
Then I made it worse by tried to do a YouTube video of uh an apology.
39:21
And I had this very odd teal shirt and it was just like every everything was wrong.
39:26
I take it there a lot of comments about the teal shirt.
39:30
which 4 years later we burned in a ceremony.
39:32
Um 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.
39:42
And so, it's ever since then we've done a lot more kind of grounded checking.
39:49
So, just to follow up related to that.
39:51
Internally, how was that decision made and could you kind of spot the train wreck in the making if you look at it in hindsight?
39:56
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? the right way.
40:05
We didn't do much farming for dissent in those days.
40:07
So, I was messianic convinced this is the right move, looking around the corner.
40:12
And And turned out that lots of people had severe doubts, but they didn't know the other executives had doubts.
40:18
So, the thing we instituted is on big decisions, we make everyone say 10 to -10 whether they think it's a smart idea. Okay?
40:26
And so, if we had done that at the time, we would have seen a whole tons of like -7, -6, -8, and then that would have been shocking.
40:36
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.
40:47
Are there any CEOs or leaders who stand out?
40:50
Let's keep to CEOs or founders who stand out to you as being courageous in talking about the uncomfortable things.
40:59
I think Jeff Bezos, I think, is probably a great standout in that and has always been very clear about being customer-centric.
41:05
And, you know, they have various controversies at times, but he's very clear about what they stand for.
41:13
So, I I think he might be the the standout example.
41:17
Paragon, one of the paragons for sure.
41:19
So, customer obsession, certainly Jeff has written about that since shareholder letter one.
41:25
And you've said that you've two religions, so customer satisfaction and operating income.
41:29
Could you hit both of those and just expand on on what you mean by both?
41:34
Well, I think customer satisfaction is clear, but it's probably incomplete because customers would love to have everything for free.
41:42
So, the challenge is to have great customer satisfaction and to charge them enough to have growing operating income.
41:48
And that constraint is what makes business challenging, fun, exciting. So, I lean into that.
41:56
What were some of the greatest insights or decisions that have allowed you to find that Goldilocks medium that contains both of those?
42:04
I think the main thing is back to setting context.
42:05
So, whether it's Powder Mountain, Netflix, or Pure before that, not saying we're only about customers.
42:13
Cuz I guess just naive, right?
42:13
We are about customers and growing operating income.
42:18
And so, I think that really back to the honesty theme that you talked about, you know, it may not be as sexy, but it's more complete context for our employees and shareholders about why we're making certain decisions. Let's talk about Yeah. Why Powder Mountain?
42:37
I've been a small skier, you know, cuz of intense work most of my life and we've had a place in Park City for a long time and loved the raising the kids, you know, here skiing.
42:49
But it got super crowded.
42:52
And when you look around skiing all around the United States because of the growth of the Epic and Icon passes has gotten very crowded.
42:59
And so, Powder Mountain is counter-positioned as the uncrowded mountain and that creates, you know, some constraints on on what we do, but it's an incredible opportunity.
43:11
Patty and I had a house there and we've enjoyed it, but just really been homeowners and nothing more.
43:15
And then after Netflix retirement, I was like, oh, here's a project.
43:20
Why don't we figure out private skiing?
43:25
So, about 20% of US golf courses are private and they have, you know, better tee times, nicer clubhouse, you know the people, you know, that kind of thing.
43:34
And that's what private skiing is.
43:34
So, we've introduced private skiing on about half of the Powder territory.
43:38
And so, that's skiing just for the homeowners.
43:42
And then, you know, the people on the left, the powder is untracked, you know, cuz there's only a few hundred families there. It's a pretty amazing.
43:48
There's a couple other private skiing places, Wasatch Peaks, Yellowstone, but they're all super expensive.
43:54
And we're relatively affordable.
43:57
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.
44:09
So for a lot of people listening, they might think of project as making a canoe with their kids.
44:17
But you're taking on this huge 10,000 acres.
44:19
10,000 acre skiing terrain.
44:21
I've spent a lot of time there. The skiing's fantastic.
44:23
You have lots of untracked powder as you would hope given the name. Amazing cat skiing.
44:27
And it doesn't seem like a minor project, I guess is what I'm saying.
44:33
So at least to mere mortals.
44:35
No, we've invested over 100 million dollars in it in this first year.
44:40
We got three new public lifts and one private lift going in this summer.
44:44
So it's definitely a big project, but also a big opportunity to build a community that's very adventurous, artistic, creative, outdoorsy.
44:51
I mean, it's an amazing place that we hope to spend a lot of time over the next 30 years.
44:59
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.
45:05
I'm sure you get plenty of offers and inbound things are interesting.
45:08
And then that doesn't even take into account the number of things you might be interested in.
45:11
Of all the things out there, why this?
45:12
Like what do you personally get from this experience?
45:17
Helping to nurture a place of beauty with a warm community.
45:20
So I do Netflix, millions of people, but I don't know most of them who are customers.
45:26
And then I do a lot of philanthropy.
45:28
And it's education, other things.
45:30
And again, it affects, hopefully in a positive way, millions of people.
45:33
But I don't particularly know them.
45:35
Powder Mountain's very intimate.
45:36
It's this close little community.
45:38
I We everyone has coffee together in the morning.
45:40
So it's doing Sky Lodge is amazing.
45:43
It's been upgraded since you were last there. Service is cool.
45:48
So it's something I can touch and feel.
45:51
And so I think it resonates in a very deep way cuz it's personal connection.
45:58
So Utah's famous for champagne powder.
46:00
It's light fluffy powder.
46:01
For people who do not have any familiarity with Utah, where is Powder?
46:07
About an hour from Salt Lake City Airport.
46:10
What's the name of the closest town? Uh Eden. Yes, yes.
46:13
There's Eden and Paradise and Liberty.
46:16
Awesome great town names, but we're on a mountain top in Eden, Utah.
46:22
And it again, it's really extraordinary ski experience because of being uncrowded and so the powder lasts for days.
46:30
Last for a really long time.
46:30
I've been there where it's lasted, you know, a week plus.
46:33
what I want everyone to feel.
46:33
Like it's even better than you said.
46:39
What do you think, and I'm sure you have thought about this, like what are the biggest challenges for Powder? for Powder, yeah.
46:45
It's been poorly managed for a decade.
46:48
They just didn't have really good people, but didn't have any money.
46:50
And so then I get to take it over in Walton and then invest, you know, again over a hundred million so far.
46:57
And it's relatively easy transformation because people want uncrowded skiing.
47:02
So it's hitting a market opportunity, you know, in a significant way.
47:07
And then it's just very joyous cuz we get to like ski in the morning and then do meetings in the afternoon.
47:12
And so it creates a a great team feeling.
47:17
Do you think you are have the hard wiring to ever retire in a capacity without an enormous project? Unlikely.
47:27
Um I I do like being engaged and making a contribution.
47:29
So I hope to be able to do that for a long time.
47:34
What is one or two of the best investments you've ever made?
47:37
Doesn't need to be financial.
47:38
Could be an investment of time, you know, Warren Buffett talks about Dale Carnegie public speaking courses.
47:42
I mean, it's a bit of the Yasha grandpa thing that he's got going, but do any particular investments time, energy, money come to mind as like real inflection points for investments, the little few times I've done investing, I've lost my shirt and I realized I'm just so optimistic.
47:59
I'm like anybody seems to have a good idea. I'm like, "Sure."
48:03
You know, so I think it's a different DNA than investors have that are differentially good investors.
48:10
So I'm a pure index fund investor.
48:10
I'm Netflix plus index fund.
48:12
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.
48:29
And so I've been on the board of KIPP Academy, one of them, for 20 years.
48:33
Been on the board of many of the other related charter organizations.
48:38
And they're somewhat controversial cuz they're not the same as the district schools, but I think it's a very healthy kind of creative tension.
48:45
And the cities that have high charters, percentage of charters, like Denver and Washington D. C.
48:50
and Indianapolis, have done much better than other cities.
48:54
So it really is a positive effect, you know, on kids and on the profession of teaching where again you can start your own public school.
49:05
And let's just chat some more about this.
49:06
So starting with my first book, even before that, but 2007, I became involved with DonorsChoose.
49:10
org where I was an advisor.
49:12
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 recognized how my trajectory differed from a lot of my friends growing up because of educational opportunities.
49:29
It seems like a excellent way to try to, maybe level the playing field is to, strange a statement, but when you see a movie like Waiting for Superman, I'm not sure if you're familiar with the documentary, but you can leave the theater or after watching this movie feel quite demoralized.
49:44
Like low-performing teachers can't be fired and X, Y, and Z that there are all these challenges in say the U. S. public school system.
49:50
What are some of the changes that you would like to see that you think can be catalyzed in some meaningful way?
49:58
problem in the US public education is our school boards turnover pretty quickly and especially in large urban districts, which makes the superintendents or the CEOs turnover quickly.
50:09
So, the average superintendent tenure in Dallas, and Denver, and Atlanta, and Boston, and LA is 3 years.
50:18
So, superintendents come in, they last for, you know, a little bit of time, the school board changes, and then the superintendent is changed.
50:24
And so, you know, why is that?
50:27
Cuz the school board members run on change.
50:28
That's how they got elected.
50:30
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.
50:38
So, we've got a system that because the superintendent changes constantly, the organization is kind of chaotic.
50:45
You know, it's not some well-run nonprofit like the Red Cross or Sutter Health, or it's not certainly a for-profit.
50:53
But, the main issue is that turnover.
50:56
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.
51:04
Again, then in some cities like Washington, you know, it's about half of the kids go to one of the charter schools, one of the nonprofit schools.
51:12
In Atlanta, it's about a quarter.
51:14
In Denver, it's about a quarter.
51:16
In Indianapolis, it's about a half.
51:18
So, we're making a lot in New Orleans, it's 100% of the kids.
51:23
So, for just for clarity for people listening, cuz 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?
51:32
just a public school, so no, it gets full tax dollars, but it's run by a nonprofit instead of the school district, a government entity.
51:40
So, that's the big difference.
51:43
What are the and maybe this isn't the objective, but what are the biggest challenges to scaling charter schools in the United States?
51:49
Usually it's the political climate.
51:49
So, it's difficult in blue states.
51:52
The unions generally oppose charter schools because then they would have to organize many different nonprofits as opposed to one big school district.
51:59
So, that's more expensive for them.
52:02
But, in red states, which are relatively low union, charters are growing very quickly because it you know, parents want choice.
52:08
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.
52:18
So, that's the big difference is a governance.
52:21
So, when you express the frustration that people or donors choose or others feel, it's because people have been trying to fix the school districts we have for 100 years.
52:32
And they've made very little progress because they get a program in and then the superintendent changes and the program goes.
52:38
So, all the work that Annenberg and Gates and others have done, you know, it gets deployed some school districts for a couple years and then it gets unwound.
52:47
Whereas, the charter schools are more very stable and continue to grow.
52:50
They're not all perfect, but the parents have an ability to choose and the kids and the families.
52:57
And so, if it's not a great charter school, you could move to another, but it is free like public schools.
53:03
If you were to teach a class, could be a seminar, could be one day, could be a semester.
53:08
Let's just say for the time being that was an obligation anywhere from fifth grade up to, you know, masters.
53:14
What age range would you choose and what would the subject matter of the course be?
53:18
because when I was 22, I was teaching my high school math, I think I jump right back in there.
53:23
You know, it just brings back so many great memories of helping kids solve problems and gain confidence.
53:31
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.
53:40
God, you know, I had one this is 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.
53:49
On the other side, my brother, 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.
53:58
It's just wild how these little things break.
54:00
uh one of horrible that that happened to you, but it happens again to kids all over, and in particular in uh lower-income big cities where the average level of teaching is not that high.
54:14
So, you have all of this involvement in education.
54:15
It's very deep involvement.
54:18
Now, Powder Mountain is your primary focus. Is that fair to say?
54:23
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.
54:31
Here's your budget for certain things.
54:33
How do you make that transition from one focus to another?
54:37
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.
54:44
And I do Powder intensely, and I do philanthropy a couple days a month. I got it. So, they coexist.
54:48
It hasn't really changed.
54:48
And then uh 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.
55:01
So, I'm in Africa once a quarter, and you know, some country doing some investment and trying to make a difference there.
55:08
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.
55:19
Now, is 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 else? You notice that.
55:28
So, most people are very strategic.
55:30
And for me, whatever one of my causes, education and Africa economy, basically because I was a Peace Corps volunteer math teacher.
55:37
So, I think I'm just trying to relive my 22-year-old self.
55:43
Seems to be working out pretty well, as far as I can tell.
55:47
What else are you doing at Powder Mountain that is different or exactly the same as, say, what you did at Netflix?
55:53
In other words, what lessons have you carried over, if any?
55:57
Fundamentally, on the culture.
55:57
We talk about being big-hearted champions that pick up the trash.
56:03
So, the big-hearted is the warm and loving and caring, which we didn't have enough of at Netflix.
56:07
Okay, at least in the culture description.
56:09
The champion is someone who wants to win and is willing to go the extra mile to win.
56:16
And then, the who picks up the trash is the self-responsible, self-disciplined, self-learning, you know, does the right thing when no one's looking.
56:22
So, I think at Powder, we actually, with our employee phrase of big-hearted champions who pick up the trash, that's who we want to hire.
56:32
We actually are better than the old Netflix description, you know, that I've learned from, because we're willing to be tighter, more memorable, and more loving.
56:40
That's the big-hearted part.
56:43
Makes me also think of You mentioned Lencioni earlier.
56:44
Makes me think of The Advantage a little bit, the humble, hungry, and smart. Absolutely.
56:48
No, very, very applicable. Does rhyme.
56:50
What would you, metaphorically speaking, put on a billboard, a message to get to millions or billions of people?
56:58
I might say hope is everything.
57:00
I think the the fundamental positive human force is hope, hope of better things in the future.
57:08
Um, and we live in a very imperfect world. We always have.
57:09
We are very imperfect creatures.
57:12
We always, you know, have been and will be.
57:14
And then, we have hope of trying to do better.
57:15
And so, and when people lose hope, then, you know, it's a very tough situation.
57:24
How do you cultivate that in someone?
57:25
Let's say there's a parent listening and they have a kid who's 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.
57:38
What would your advice be to that parent in terms of what they can do to help?
57:44
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.
57:50
So, it's trying to understand from the kids' perspective, why are they feeling that way?
57:55
And then certainly, you know, 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.
58:10
And there is hope of great happiness in the future for them.
58:16
Well, you have very You were talking about a high density of talent.
58:20
You have a very high density of clear, actionable thoughts.
58:25
Well, you've checked a lot of boxes.
58:26
Reed, is there anything else that you would like to say or discuss before we land the plane?
58:30
I mean, I'm not in a rush. I've got time.
58:33
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. Check it out, folks. Powder for days. Thank you, Reed.
58:47
Is there any place you would like to point people?
58:48
Is there a website for Powder Mountain? powdermountain.
58:51
com Not not right on the nose, Tim. Right on the nose.
58:56
Well, thank you very much, Reed, for the time.
58:58
I really really appreciate it.
59:00
It's nice to be looking out the window at snow as we're talking about Powder Mountain.
59:04
And for everybody listening, we will put everything discussed in the show notes as per usual at tim.
59:09
blog/podcast, and until next time, just be a little kinder than is necessary to others, but also to yourself, and thank you for tuning in.
59:20
Hey guys, this is Tim again.
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