Working World

Reed Hastings once had a $40 late fee at the video store because he misplaced the cassette for Apollo 13. He knew there had to be a better way to rent movies.

In the late '90s, when DVDs started replacing videos, he realized that shipping costs for a rent-by-mail system would be relatively inexpensive and online ordering more convenient for customers. As an experienced entrepreneur who had already started, grown and sold one business, he was ready to develop another, so he founded Netflix in 1997. The Internet-based company had one million customers inside of four years — it now has seven million subscribers and a library of 90,000 movie and TV show titles.

He credits his success partly to “taking smart risks,” but cautions that “guessing right is a skill developed over time.” In an interview with Inc.com, he said, “Being an entrepreneur is about patience and persistence, not the quick buck, and everything great is hard and takes a long time.”

Hastings had an adventurous streak early on. After college, he joined the Peace Corps and taught high school math in Swaziland for two years, living in a thatched hut in a village without electricity. He says he “absolutely loved it.”

When Hastings returned to the States he attended Stanford, earning a master's degree in computer science in 1988. After a first job at a technology company developing a tool to debug computer software, he founded his own company, Pure Software, which made software troubleshooting products. He was 31.

The company experienced explosive growth in four years, creating some challenges for Hastings, whose background as an engineer had not prepared him to run a company that was doubling its revenue every year. He tried to fire himself as CEO — twice — but the board of directors would not let him. Pure Software went public in 1995, and merged with Altria in 1996. This combined company, Pure Altria, where Hastings was chief technology officer, was acquired by yet another company, Rational Software, in 1997. By this time, Hastings had acquired significant executive experience and plenty of money to invest in another venture.

When Netflix began in 1997, it started out renting single movies by mail, but the company did not take off until the subscription model was instituted in 1999, allowing people to participate for a flat fee and use it as little or as much as they liked.

In response to increased demand for timely delivery, 100 shipping points around the country have opened so that Netflix can deliver movies within 24 hours to 95 percent of its customers. Aware that video-on-demand is going to be the next big thing, Netflix is investing in that technology and preparing to provide this new distribution system. In 2007, it began offering members the ability to watch available movies instantly on their PCs.

Netflix’s customer base has three components: those who like the convenience of home delivery, movie buffs who enjoy the huge selection, and bargain hunters who can rent lots of movies cheaply with the flat rate arrangement.

Hastings’s long-term goal is to “transform the movie business by making it easier for people to discover movies they will love and for producers and directors to find the right audience.”

Hastings is also very active in the school reform movement in California and served as president of the State Board of Education from 2000–2004.

Suzanne Ridgway is a freelance writer and regular columnist for Working World and Working Nurse magazines. She also writes grant proposals for nonprofit organizations.