Netflix co-founder Reed Hastings showed Silicon Valley the proper leadership path

Silicon Valley founders could learn a lot from the orderly, drama-free succession planning at Netflix Inc. that reached a conclusion Thursday.

Co-founder Reed Hastings stepped down as co-chief executive Thursday, roughly 25 years after he and co-founder Marc Randolph hatched the idea that ultimately became Netflix
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in the dot-com era. They started out with DVD movie rentals through the mail, with Randolph serving as the first CEO before Hastings took over in 1999, well before Netflix’s 2002 initial public offering.

Hastings did not create a separate class of stock in that IPO to maintain rock-solid “founder control” of the company, like many other founders of his era. Yet he still managed to stick to the path he felt the company needed to take, guiding Netflix through turmoil and drastic changes to still become the leader in the streaming business that Netflix pioneered.

It wasn’t easy. There was the “Qwikster” debacle of 2011 and its fallout, which had customers and investors calling for Hastings’s head. Netflix created original content at great expense, despite Wall Street’s constant doubts about the amount of debt the effort required and Netflix’s ability to make it pay off. And doubters still remain, as the stock got pounded last year amid a lull in subscriber growth.

From 2013: Netflix no longer a pariah on Wall Street

Even as pressure built last year, however, Hastings maintained his succession planning. In a blog post and video interview Thursday, he described how he has been discussing the plan with the company’s board for the past decade and executed it in the midst of a global pandemic.

In 2020, Netflix named Ted Sarandos, the company’s chief content officer, as co-CEO, and promoted Chief Product Officer Greg Peters to chief operating officer. In a blog post, Hastings said that he largely stepped aside and allowed Sarandos and Peters to run the company — a test run for his new role as executive chairman, with Sarandos and Peters now co-CEOs.

From 2020: Netflix promotes its Mr. Hollywood to co-CEO, showing importance of original content

“It was a baptism by fire, given COVID and recent challenges within our business,” Hastings said in Thursday’s blog post. “But they’ve both managed incredibly well, ensuring Netflix continues to improve and developing a clear path to reaccelerate our revenue and earnings growth.”

Granted, some of the results of the company’s succession planning remain to be seen, with Peters having inherited a plate full of issues, as Netflix seeks to return to bigger growth rates amid huge competition in the streaming business. Jamie Lumley, an analyst at Third Bridge, also pointed out the macroeconomic factors in the background.

“While the subscriber growth numbers are encouraging, revenue growth is sluggish with the backdrop of a potential recession looming on everyone’s mind,” he said in an email. “Incoming Co-CEO Greg Peters will have a number of major decisions on his plate from managing high levels of expenses, password sharing, and cracking the code to find the next ‘Stranger Things.’”

But even so, tech founders such as Marc Benioff of Salesforce.com Inc.
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who’s gone through two co-CEOs in the past two years, and Meta Platforms Inc.
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co-founder Mark Zuckerberg, whose insistence on his vision as the controller of the Facebook parent has hurt the company, just to name a few, should watch the Netflix leadership show.

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Netflix has been drama-free compared with other companies in Silicon Valley, where stories about leadership machinations can sometimes overwhelm the performance of the company. Hastings has been celebrated for some of the unique parts of Netflix’s corporate culture — such as unlimited vacation, a policy that has spread widely — but his ability to maintain control without supervoting rights, stare down Wall Street to navigate growth his own way, and elevate homegrown executives to top spots to replace him is the type of journey that should truly be celebrated.

Hastings, 62, noted at the end of Thursday’s video interview that he will still be behind the scenes, with a lot invested in the company’s success. After 83 earnings calls/interviews, that was how Hastings signed off to Wall Street with a job well done. Other tech founders should hope for similar results.

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