Successful organizations often seem to have had a master plan for growth from the beginning. Today, Netflix is a global entertainment and streaming company, but its early years were far from certain. Before Netflix went public and changed the way people watched television and movies, it had to go through a major crisis.

In 1997, Reed Hastings and Marc Randolph founded Netflix. In 1998, the company launched its DVD-by-mail service which allowed customers to select movies on the Internet and receive them in the mail. The model took on the traditional video rental stores by getting rid of late fees and due dates.

But when the dot-com bubble burst, the company’s future was uncertain. Hastings said in a 2015 fireside chat with Reid Hoffman for Stanford’s CS183C class that Netflix’s main objective from its inception in 1997 until it went public in 2002 was to stay out of bankruptcy. He said that in 2001, Netflix had to slash its workforce by a third, from 120 to 80.

Netflix was a young company, and so had the painful layoffs. It had been getting bigger but not big enough to get out of the slow-down in internet funding. The organization had to downsize and learn how to do more with less.

Hastings later said he expected the rest of the team would be challenged after the layoffs. But he saw something strange instead. The organization was able to get more work done with fewer employees. The other employees could communicate better, move faster and have less processes to run their work.

Hastings learned a very important lesson from all this. He did not see the layoffs as a casual one-off to be repeated, but he did learn that the quality and working together of a team was more important than the number of staff. Netflix began to buy into the idea of “talent density,” a phrase that would be coined later by Hastings. The idea was that a company performs better when it is filled with people who are very good at what they do and who help each other to succeed.

The crisis also affected the wider culture at Netflix. The organization was recognized for its commitment to creating a culture of autonomy among its employees, even in expectation of tremendous success. The next culture at Netflix was accountability, performance, and getting rid of unnecessary controls. Netflix says that Reed Hastings published the company’s first culture deck in 2009, and its emphasis on performance and values over rules helped the company adapt and grow.

Netflix weathered the crisis and continued to grow. The company went public in 2002. At the time, Netflix claimed to be the world’s largest online DVD rental service, with a library of more than 11,500 titles and more than 600,000 subscribers.

What we learn from Hastings’ story is not that layoffs make for success. Job losses are painful and can be damaging to individuals and to organizations. More importantly, a crisis can make leaders look at what the company is really good at. For Netflix the solution wasn’t as simple as hiring more employees or having more regulations. The company managed to make the transition before it was too late, with a clearer culture and a smaller group of strong performers.

Source :
https://medium.com/cs183c-blitzscaling-class-collection/cs183c-session-16-reed-hastings-4e1058d2439f
https://ir.netflix.net/investor-news-and-events/financial-releases/press-release-details/2002/Netflix-Announces-Initial-Public-Offering/default.aspx

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