31岁公司卖了6亿美刀，改出租光碟亏了几千万——人生就是不断的「作」A Life of Tinkering: How Reed Hastings Built Netflix

There's surely someone in your life who's a penny-pincher — cheap in ways that make no sense at all. But however baffling they are, once they get serious about it, the world slowly changes because of them. History has proven it more than once.

Not long ago, Netflix announced that in the fourth quarter of last year its global user base grew by 5.59 million to 74.8 million households, still delivering $43 million in net profit amid all the economic turbulence, on revenue approaching $7 billion. Netflix now reaches 190 countries — missing only that vast Chinese market. Last year, the return it delivered to investors also topped every stock in the S&P 500.

Netflix's profits may not be high right now, and the stock has slipped from its peak, but the company has been profitable ever since it went public. The stock still trades north of $100 a share, with a market cap near $50 billion — 3.75 times Twitter's, close to quadruple. What kind of company earns this kind of unbroken adoration from the capital markets?

It all starts with this man.

(Figure in original — a photo of Netflix founder Reed Hastings.)

Restless Even in Childhood

Reed Hastings, founder of Netflix — yes, that Netflix, the logo you see at the front of so many American series. In recent years its shows have swept all before them: House of Cards, which emptied the streets, came from him. And House of Cards was long a favorite of Party Secretary Wang Qishan, brought up and praised again and again.

His life is different from a lot of the success stories we know. No powerful father to lean on, no bitter, tear-jerking, melodramatic ordeal. On the contrary, his luck has always been good — he just kept tinkering, and tinkered to real effect.

Reed Hastings was born in 1960 and grew up in the eastern United States. In his early years he attended Buckingham Browne & Nichols, a top private prep school. In 1983 he graduated from Bowdoin College in Maine, founded in 1794 and named for James Bowdoin, in honor of the former governor of Massachusetts. After graduating, he didn't drop out to start a company like the Gateses and Zuckerbergs we all know; instead he set off alone to Swaziland, a small country near South Africa, and spent two years there teaching math. Back home, he pulled off the surprising move of applying to MIT for graduate school — and was rejected. In the end he got into Stanford, and in 1988, at 28, he finally earned his master's in computer science. By then Gates had already developed Windows three years earlier.

(Figure in original.)

A New Recruit, Hit Hard Early

In 1991 Hastings launched his first venture — his own software company, Pure Software. Pure Software made the heavy-lifting scripts you used when writing in C. The company's products mainly helped solve memory-leak problems when debugging C programs.

At every startup, they wish they could work the women like men, the men like beasts, and one person like two. He was no exception back then, holding down two jobs at once: by day, in everyone's eyes, he was the company's CEO; by night, he was the programmer hunched tirelessly over his computer, so busy he didn't even have time to shower, until someone eventually felt compelled to remind him: "Maybe you should go take a shower first."

"I saw myself as this model worker who couldn't take a single day off. Maybe I should have spent more time talking with other entrepreneurs. But back then I couldn't figure out how to do it well," Hastings said at the time.

Perhaps heaven rewards the diligent: all that effort paid off, and the company kept growing. Headcount went from 10 to 40, then 320, and finally 640 — at which point Hastings, a technical guy short on management experience, found the fast-swelling company handing him challenges and confusion like nothing he'd faced before. He began to feel "like I was underwater, or paddling a kayak through rapids." More than once, he asked the board to remove him or find someone to replace him. "I'd completely lost confidence back then, so more than once I wanted to fire myself."

The board turned down Hastings's proposal to remove himself, and in the end he didn't get his wish.

In 1996, Pure Software announced its acquisition of Atria Software. But the merged company saw no great leap forward, and within a year Pure Atria was itself acquired by Rational Software. In the end, Pure Software was bought in 1997 for roughly $600 million, and Reed Hastings struck his first pot of gold.

Here you'd think his life would sail smoothly from then on — soaring, becoming one of life's winners — but at this point he chose to stay home renting discs and watching movies. It looks downright unbelievable, like sheer idleness. But if a person's luck is good enough, they really can be willful, really can defy all reason; even when they want to sink into idleness, the wheels of history won't give them the chance.

(Figure in original — Netflix Expands to 190 Countries Around the World.)

Setting Off Again, Out of a Love for Movies

The legend of why Netflix was founded goes like this: Hastings rented a videotape of Apollo 13, and because life was too cushy and easy he forgot to return it on time and got hit with a $40 late fee. Enraged, he founded the company to change the world. He swore to build a DVD-rental company that didn't charge fines — pretty grand and willful, really.

At the time he must have felt aggrieved: this isn't about how much or how little money it is, it's a matter of principle — how can you fine me? And it was because of this one small episode that he set out on his second venture. And so Netflix was born.

But according to Marc Randolph, Netflix's other co-founder, that's just a story — made up for publicity.

Marc Randolph and Hastings had met at Pure Software, and the two of them were mulling over what else to do once the company was sold.

So in 1997, in Los Gatos, California, Reed Hastings and co-founder Marc Randolph started Netflix together. At the time, Netflix's business was about as traditional as it gets: renting movies on DVD over the internet and mailing them to customers all over the country. Because DVDs were far smaller than traditional videotapes, they were easy to mail.

But in Netflix's early days, Hastings wasn't sure anyone would actually use the service. "Netflix started out just offering a single rental service. The subscription model was one of our few real ideas, but even that wasn't exactly stunning," Hastings revealed. "In hindsight, having no due dates and no late fees gave Netflix tremendous competitive strength, but back then none of us knew whether users would enjoy building or browsing long lists of movie DVDs online."

In May 1998 the company's website went live and began taking orders. The team started dreaming up every possible way to open the market and win users at the lowest possible cost.

At first, since most customers tended to rent three DVDs at a time online, the company would wait until all three were gathered before shipping them out. The average labor and postage cost per order was too high. Later the company changed its strategy — ship each disc as soon as it came in — but with the dream of becoming a unicorn, it still looked hopelessly far off.

Finally they noticed something: in Silicon Valley, if customers in a given area could place an online order and receive the disc the next day, that area signed up new customers at several times the rate of other regions. Having spotted this opening, the company decided to break in through Silicon Valley, aiming to serve the tech elite; Netflix chose to rent DVDs online. This laid the foundation for the fight over users — and the eventual victory — against the industry's giant.

In 1999, Hastings raised $100 million from his VC network, gearing up for a big expansion and preparing to go public the following year. It looked, once again, like he was on the road to becoming one of life's winners. But that year's operations lost $30 million. As the company grew, by early 2000 Netflix already had 120,000 users — but it happened to be the peak of the internet bubble. When the bubble burst, Netflix's IPO plans were forced to a halt, and the company lost $60 million that year. Fortunately, just before the eventual IPO, Hastings secured another round of funding from investors, keeping the capital chain from snapping — and that's how the company survived.

Later, to stay alive, Hastings wanted to sell the company to Blockbuster, then the big brother of the movie-rental business. But the proposal was politely and disdainfully refused, because Netflix's customer base was less than 1% of Blockbuster's. Back in Silicon Valley, to rein in losses, he laid off 40% of his staff in one stroke in September 2001.

Around 2000, Hastings's foresight came to his aid once more. Netflix began moving into online streaming. And Netflix's streaming business — unlike traditional DVD rental — kept steadily drawing in customers thanks to the "advantage" that they never had to pay fines. By the end of 2001 the company's subscriber count had climbed to nearly 500,000, and by 2003 it had passed 1 million. At a time when most internet and high-tech companies were in ruins, with wailing all around, Netflix's steadily growing performance caught the attention of the capital markets. In May 2002, Netflix got its wish and listed on the Nasdaq.

After the IPO, it ran into big brother Blockbuster again. This time it was direct, face-to-face competition. But this time the goddess of fortune stood on Netflix's side. And from the very start, Blockbuster was at a disadvantage.

On one hand, Blockbuster's own online business got started later than Netflix's, and its largest source of cash flow — late-fee fines — was also its greatest vulnerability in the fight. At the same time it was saddled with enormous debt, which weighed heavily on Blockbuster, so from the outset it fought with more will than strength.

On the other hand, Blockbuster "came along at the wrong time," running straight into the 2008–2009 global financial crisis. Foot traffic at brick-and-mortar rental stores dwindled to almost nothing, and creditors began piling on the pressure, hounding it over its debts. In the end, in March 2010 Blockbuster issued a public bankruptcy warning, and in September it formally declared bankruptcy — a fallen giant of its generation.

With Blockbuster gone, Netflix's stock rose sixfold within two years, and its subscribers grew from 9 million to 20 million. It began its climb to the summit, launching a video-streaming service in 2007 that cemented its steady rise to the top of the industry.

And this contest between Netflix and Blockbuster became a story people would relish retelling. Clayton Christensen — author of The Innovator's Dilemma and the father of "disruptive innovation" — went so far as to argue that in Silicon Valley, Netflix was the true "disruptive innovator." Because it fit exactly what a "disruptive innovator" is supposed to be: "the process by which a fledgling company gradually gains the strength to challenge the dominant incumbent — gaining a foothold by offering a more suitable, and often cheaper, service."

(Figure in original — Netflix LOVE.)

The Tinkering Never Stops; After "Coming to His Senses," the Path Grew Clearer

Perhaps it came from Hastings's restless, tinkering nature, but he started "tinkering" again. Then again, geniuses are often like this — and they have the capital for it. The company was in a phase of rapid ascent, but the sharp-eyed Hastings had already sensed that online streaming was the great tide of the future, and that the mail-order DVD-subscription business would in the end become a thing of the past, cast aside. So he decided to split the company's two businesses and focus on internet streaming. That, too, was a bold move: better to take the knife to yourself than let someone else do it for you.

In 2011 Netflix "unilaterally" announced that it was raising the price of its existing two-in-one service from $10 a month to $16. Users could also choose either mailed DVDs or online streaming as a single service, which brought the monthly fee down to $8.

Even after the increase, Netflix's service was still the most competitive out there. But for users, with no warning and no notice, no heads-up and no discussion, prices were simply and crudely jacked up — and it left them utterly gutted. Six dollars might not even buy a cup of coffee, but the effect was truly "instant": users bolted en masse, and the stock slid all the way from $300 to $70, a drop of more than 75%.

Taking the long view, he decided to pivot Netflix fully into streaming. The earlier membership-price change was scrapped, and in the end Netflix decided to offer streaming free as part of its online DVD-rental service, without charging existing members anything extra.

Looking back now, his methods at the time really were too blunt and crude, but you have to admire Hastings's grasp of the big picture, his foresight, and his nerve.

Even as he reinvented the company, the sharp-eyed Hastings sensed the pain of having his content sources and channels held hostage by the six major studios — and he began to shore up the gap in his own content, pushing hard on innovation and transformation.

"Our focus over the past few years hasn't changed: improve the content, improve the streaming business, improve the user interface. The business keeps growing, and that's our reward," Hastings said on an earlier video call.

To route around the control of the big media conglomerates and seize the initiative, Netflix partnered with independent production companies to develop first-run series, opening up first-run projects through some North American independents. Before this, these independents had been hemmed in on all sides by the big media groups, and Netflix's arrival gave them a new option too.

At the same time, Netflix placed unprecedented weight on original content. Not long ago Netflix announced: it already had as many as 20 original series, and over the next five years it would release a new original series or a new season every two and a half weeks. What does that mean, exactly? Take the 2014–2015 season: the five broadcast networks ordered a combined 54 scripted shows, and the total that ended up getting a second-season order was maybe only a dozen or so. Netflix's tally of new original shows in 2015 alone was more than double the sum of its new originals over the previous three years combined.

In its transformation, Netflix in fact had one crucial advantage: real-time big data on users' viewing habits.

Netflix built its rise by scrapping "due dates," which became its core competitive edge and ultimately beat Blockbuster. From the very beginning, Netflix used a distinctive movie-recommendation system that, combined with the personal information members filled in (region, gender, preferences, films rented, and so on), produced a recommendation list packed with plenty of obscure titles. So Hastings already knew how to put big data to work back then.

Netflix holds real-time data on every user's viewing habits and tastes. Analyzing this user data, Hastings found that people loved the films of actor Kevin Spacey and director David Fincher, and that dramas depicting political struggle were also very popular. So he decided to place a bet. It was against this backdrop that House of Cards was launched. It's said that beyond understanding and analyzing user preferences, Netflix analyzed users' every action — when they fast-forwarded, when they rewound — and then applied the data to the making of House of Cards. The moment it launched, it was a smash hit.

And as everyone knows, American series air one episode a week. Sifting through all manner of big data, Hastings observed that users increasingly disliked sitting in front of the TV every night for the latest episode, and preferred to save them up and watch in one go. So he made another disruptive decision: release the whole season at once. This was a brand-new experience, completely unlike the traditional model of airing one episode at a time on a fixed schedule. Subscribers could watch anytime, anywhere there was internet, and jump to any segment at will. In the future all Netflix's American series would work this way. Now, showing off on social media about binge-watching an entire series in one sitting has become the latest quirk of countless TV fans.

Through a sound arrangement of its content, and by wrapping the most talked-about of it — House of Cards — in big data, the shows' influence was converted directly into Netflix's productivity, vaulting Netflix into a new power in the video-streaming world. In 2013 Netflix gained roughly 10 million new paying subscribers, and that October the stock broke $300, setting another all-time high.

(Figure in original — the NETFLIX robot.)

Beyond building up its own content and ramping up investment, Hastings also did an excellent job on Netflix's internationalization.

Like Hollywood films, the vast majority of American series rarely touch subject matter outside the United States, and shows set in the East or in minor languages are even harder to find. And once again Netflix took the road of innovation. Its original series Lilyhammer was shot entirely on location in Norway and in Norwegian. Netflix's chief content officer, Ted Sarandos, once said, "The time is ripe to get Americans reading subtitles — it's worth the gamble." When Lilyhammer aired on Norway's NRK on January 23, it drew nearly 1 million viewers, setting an all-time viewership record in Norway (57%) — a striking result. Marco Polo, launched in 2014, turned its gaze to the rarely chosen subject of China, and boldly opted for a historical setting. The first season's 10 episodes had a total budget of $90 million, not only setting Netflix's record for its most expensive series but ranking among the very highest in the world for production cost, second only to HBO's Game of Thrones.

Today's Netflix already has more than 75 million subscribers across 190 countries. Not long ago the American business magazine Fast Company ranked it fifth on its list of "The World's 50 Most Innovative Companies of 2016," and the industry widely recognizes it as the leader in internet video streaming.

By his plan and ambition, Netflix's streaming service would expand further to 200 countries by the end of 2016, and China, a colossus, is naturally a key target he can't ignore. Just recently, Hastings revealed that Netflix was looking to bring an ad-free paid online video-subscription service to the Chinese market. This means Netflix would use its traditional business model to enter China, rather than partnering with advertisers.

Seasoned by Netflix, Hastings today is clearly no longer merely an engineer — he has grown more mature, more steady, and become an outstanding chief executive.

(Figure in original — #netflixeverywhere.)

Netflix and Hastings: The Legend Goes On

"Once you've had the experience of being down to your last ten dollars in your pocket but crossing all of Africa by hitchhiking, starting a company doesn't seem like such a big deal," Hastings said, speaking of his time as a Peace Corps volunteer in his youth.

Perhaps that singular experience in his early years made him tougher, and gave him greater help when he started his company.

From 1997 to 2016, across twenty years of rises and falls, Hastings — co-founder and CEO — leaped nimbly among all sorts of extremes. He knew setbacks, but they came alongside greater success. Through the trials of building a company, he became a decisive, hard-charging CEO; through the company's repeated pivots and transformations, he became, step by step, a darling of Wall Street.

Netflix is still a legend in the making. And Hastings, too, will go on down his legendary road.

Looking back, Netflix and Hastings's success, in sum, comes down to: focus, persistence, and a distinctive business model. And, of course, some of it owed to the rival's mistakes.

Note the arc of Netflix's development. It seized opportunity at moments of epochal change, launching House of Cards just as big data was catching fire. It kept pace with the times without getting ahead of them, and stayed closely tied to its users throughout. Its positioning was crystal clear: focus solely on providing content, supply its video standards to mainstream manufacturers, focus on growing the pie, and stay out of devices, manufacturing, and sales. In today's IP-crazed world, this only confirms the "foresight" of Netflix's focus on content — end-user devices are, in the end, just tools, still dependent on the content provider. As a content provider, Netflix will only grow bigger and stronger.

The great Way is simplicity itself; the only constant is change. At the same time, in other countries, other places, other markets, there must be the same or similar situations: two companies competing, fighting to the death. But when opportunity and the scales tip toward one side, for both entrepreneurs and investors, it's a perfect moment to step in.

All of this takes everyday accumulation, long-term persistence, and patient learning.

(Figure in original — NETFLIX holding a rose.)

Reference:

"At 31 He Sold His Company for $600M, Switched to Renting Discs and Lost Tens of Millions, Yet Created the Show Old Wang Calls Legendary — His Life Is One Big Story of Stubbornness and Stinginess." Source: internet commentary.

"Behind the Technical Gimmicks of House of Cards: Unpacking How Netflix Broke Through." Source: Mtime.

"What Kind of CEO Forged the Netflix Legend?" Source: China Economic News.

"Netflix's Reed Hastings: An Ambitious Tech Geek." Source: New Economy, by Song Shuangjin.

"How Netflix Changed the Landscape of American TV: Binge It All at Once, Revive What's Been Canceled." Source: Tencent Entertainment, by Meng Tianxiang.