Netflix Shouldn’t Have Survived. Here’s Why It Did
Guy Raz Newsletter – February 12, 2026
Netflix should not have survived.
That is not a hot take. It is just math.
In 1997, Blockbuster was the default option for movie night in America. Nine thousand stores. A brand so ubiquitous it felt like infrastructure. Netflix, meanwhile, was a weird little website mailing shiny discs in envelopes.
And yet, by 2010, Blockbuster filed for bankruptcy. Netflix became the verb.
The broad outline of that story is familiar. What I didn’t fully appreciate until I sat down with Reed Hastings is how much of Netflix’s success came down to leadership choices made when the company was small, scared, and very breakable.
Reed does not present himself as a movie obsessive. He is not the guy quoting Kurosawa. He is an engineer who describes himself as a crossword puzzle solver. He likes hard problems with lots of constraints. Netflix just happened to be the biggest puzzle of his life.
Here are five lessons I took from our conversation, especially for anyone building a company in a market dominated by giants.
1) The “late bloomer” advantage is real, if you use it
Reed told me he was a late bloomer. No varsity sports. No girlfriend. Not a standout student. In other words, nobody in high school was circling his name and saying, “That kid is going places.”
Then he gets to college, takes an advanced algebra class, and sees a chart of scores: he got a 100, and the next closest score was an 80. It changed his self-concept overnight.
That moment matters because it hints at a bigger pattern: people who find their footing later often develop a hunger for competence that early stars never have to build. They learn how to manufacture confidence rather than inherit it.
Founders obsess over origin stories, but the more important part is what you do with them. Reed’s story is not “I was always special.” It is “I got better, then I kept getting better.”
If you are building something and you feel behind, you are not disqualified. You might be early in your own curve. The lesson is not to romanticize struggle. The lesson is to stay in the game long enough for your strengths to show up.
2) Admire the leader who washes the cups, but do not follow them into a box canyon
One of the most vivid stories Reed told me has nothing to do with streaming, or content, or Silicon Valley mythology.
Early in his career, Reed worked at a startup where the CEO was charismatic and deeply admirable. Reed pulled all-nighters. He wrote beautiful code. And the product failed. One customer bought the software. That customer never installed it.
Then came the moment that stuck with him.
Reed used to leave coffee cups all over his cubicle. Sometimes they would get washed and returned, and he assumed the janitor did it. One morning he came in at 4 or 5 a.m., went into the bathroom, and saw his CEO at the sink with a pile of coffee cups.
The CEO had been washing Reed’s cups for a year.
“I want to follow this guy to the ends of the earth,” Reed told me. Then he added the punchline: the CEO did lead them to the ends of the earth. They built something nobody wanted.
Here is the leadership lesson Reed extracted from that: you need two things at once.
You need to be trustworthy and admirable. You also need to be right enough about the market so you do not lead talented people into what Reed called a “box canyon.”
In other words: character is not a substitute for judgment.
This comes up constantly in business. We confuse goodness with correctness. We assume that because someone is kind, they must be competent. Or because someone is inspiring, they must be strategic. Reed’s early scar taught him to separate those qualities and insist on both.
3) If you never “sharpen the axe,” your company will harden around your flaws
When Reed started Pure Software, he described his management style with brutal honesty: he had one gear, which was “work hard.”
When things got difficult, he worked more. He coded at night and tried to be CEO during the day. He admitted he looked haggard, smelled, didn’t shower. Not exactly the vision you want when you are trying to recruit a sales force.
He also made a classic founder mistake: he kept hiring the wrong head of sales and then taking a year to figure it out. New head of sales every year, five years in a row. Chaos.
And then he said something that, if you have ever run a fast-growing organization, will land like a punch: he was “too busy chopping wood to sharpen the axe.”
He was even invited to join YPO, an organization designed for mentorship and reflection. He turned it down because it felt indulgent. A day a month not working? Impossible.
This is the founder trap. You confuse motion with progress. You build a company that reflects your default settings, and your default settings become the culture. If your default is “work harder,” everything becomes a sprint. If your default is “add process,” you slowly crush creativity. If your default is “avoid hard conversations,” you create a swamp of mediocre performance.
Reed’s takeaway, which ultimately shaped Netflix, was that leadership is not just doing the work. It is designing the system that does the work without destroying the people.
4) The best business pivots are emotional, not analytical
Netflix’s early model was basically Blockbuster, by mail.
Four bucks for a rental. Five days. Late fees if you held it too long.
And Reed said something that surprised me: they were not seeing repeat behavior. People would rent three, four, five movies, then disappear. The product was interesting. It wasn’t sticky.
Then, on September 23, 1999, Netflix launched the subscription model: 20 bucks a month for unlimited DVDs. Return one, the next one ships automatically from your list.
They had no idea what retention would be. Reed described watching day by day, waiting to see who would cancel, and then the “unbelievable elation” when retention stayed high.
Here is why I think this moment matters for every entrepreneur: the pivot was not just a spreadsheet improvement. It was a psychological unlock.
Subscription turned Netflix from a transactional service into a habit. It turned the customer relationship from “Do I want to rent a movie?” into “Netflix is how I watch movies.”
Most founders talk about pivoting like it is a purely rational exercise. Test, measure, iterate. Sure. But the biggest pivots often succeed because they change how the customer feels. They remove friction. They eliminate resentment. They create identity.
Netflix did not just eliminate late fees. It eliminated the moral framing of late fees. It made movie watching feel abundant, not punitive.
That is not just strategy. That is empathy.
5) Culture is not perks. Culture is the speed at which you tell the truth
The most controversial part of Reed’s leadership story is Netflix’s culture of “freedom and responsibility,” and the idea of “talent density.”
Reed told me the core concept was simple: if you have incredibly talented people, you do not need a lot of process and rules. Netflix tried to be anti-process and pro-talent. He compared it to a championship sports team, not a family.
Because families are loyal even when someone is not performing. Teams are not.
Then he said the line that still makes people recoil: “adequate performance gets a generous severance package.”
Netflix’s mechanism for this is the “keeper test.” Would you fight to keep this person if they were leaving? If the answer is no, it is time for a generous severance.
Whether you love this or hate it, it reveals something important about how Reed thinks: culture is a system for telling the truth quickly.
And Reed also acknowledged the downside. The early culture deck did not balance enough warmth. It came across as internally competitive, even if the lived experience inside Netflix was more collaborative. He said they should have made the deck feel more like the teamwork it actually required, the “blind passes” where you trust your colleagues so much you can throw without looking.
The most useful culture lesson from Reed, to me, came not from the deck itself but from what happened after the Qwikster disaster in 2011.
Reed became obsessed with moving away from DVDs and leaned into splitting the business. The plan blew up. Customers got angry. The stock dropped dramatically. They had to reset expectations.
When Reed later analyzed what went wrong, he realized something: many top executives thought the decision was risky and unwise, but they deferred to him because he had been right so many times before. They also didn’t realize others in the room felt the same concern.
So Netflix instituted a practice for big decisions: leaders publicly weigh in on a scale from negative 10 to positive 10. Not to vote, but to surface reality. Reed still believes in an “informed captain” model. The captain decides. But the captain must know what everyone really thinks.
This is the leadership move most companies never make.
They say they want candor, but they punish it with subtle social cues. They reward the person who agrees quickly, not the person who dissents clearly. They end up in an echo chamber, then act surprised when a decision backfires.
Culture, at the end of the day, is not what you say on the wall. It is how fast the truth can travel.
Have a great week!
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On HIBT This Week!
Netflix: How a DVD-by-Mail Experiment Beat Blockbuster
In 1997, Reed Hastings was supposed to be done. He’d sold his first company, made his money, and was settling into a quiet life of angel investing.
Then one seed investment changed everything.
Hastings partnered with Marc Randolph, and during their commutes they brainstormed e-commerce ideas. Video rentals stood out. Not because the market was wide open, but because the customer experience was miserable.
Late fees. Limited selection. The whole thing felt broken.
So when DVDs arrived, Hastings ran a beautifully simple experiment: he mailed a CD to himself to see if it would survive. When it arrived intact, Netflix was born.
The early days were brutal. Only about 1% of U.S. households even owned a DVD player. The first business model looked a lot like Blockbuster, just slower. Customers weren’t coming back.
Then Hastings made a radical bet that changed everything: a shift so simple it sounds obvious now, but at the time, it terrified the team.
Even still, Netflix barely hung on. They even approached Blockbuster hoping to become their online partner. But Blockbuster scoffed – no deal.
So how did a scrappy startup outlast a 9,000-store empire? What was the culture philosophy that shocked corporate America? And what was the near-catastrophic misstep that almost blew the whole thing up?
The answer involves a leadership lesson learned from a humble boss, a test that redefined how companies think about talent, and a painful public failure that forced Netflix to build something most companies never do: a system for surfacing the truth.
HIBT Advice Line: Allow Yourself to Dream
This week on the Advice Line, I’m joined by Julia Hartz, co-founder and CEO of Eventbrite. Julia first came on the show in 2020, and a lot has changed—including a recent acquisition. She brought a powerful theme with her: turning online attention into real-world community.
First up, Mia: How do I stop running two businesses at once?
Mia’s Pottery to the People pulls in about $150,000 a year, split between a YouTube channel with nearly 200K subscribers and an e-commerce shop selling pottery tools. The problem? Only about 25% of her YouTube audience overlaps with her buyers. Julia validated the tension—she really is running two businesses. Our advice: treat YouTube as a billboard you control, but remember that YouTube owns the algorithm while you own your customers.
Next, Jen: How do we reach more families on a shoestring budget?
Jen co-founded Anyway Magazine, a print magazine for tweens and teens designed to be a fun, off-screen resource. With 2,500 subscribers and about $200K in revenue, it’s working, but both founders still have full-time jobs. Julia zeroed in on positioning: the real buyer is the parent or grandparent, driven by nostalgia for flipping pages and circling things.
Finally, Anagha: How do I make the extra time feel like a feature, not a flaw?
Anagha’s Aunty Misri makes globally-inspired bake-at-home dessert kits that take more time than a typical cake mix. Julia told her not to hide that: the longer process is the product. It’s an invitation to slow down and create memories.
Julia leaves us with this: She was so focused on being practical early on that she never made room to dream. Her advice? Even if you’re a pragmatic operator, take time to envision the best-case version of your mission. Because sometimes, it actually happens!
If you would like to be featured on an upcoming episode, call and leave a 1-minute message at 1-800-433-1298 or send a voice memo to hibt@id.wondery.com
Wow in the World!
Lizards Love Reality TV!
Grab your popcorn because it’s time for the HOTTEST new reality show about cold-blooded creatures – Lizard Island!
Me and Mindy host the ultimate watch party with the whole WOW crew to meet two incredible lizards who have been together for over 27 YEARS! That’s right… These lizards are completely monogamous and have stuck together longer than most Hollywood couples!
But here’s what’s really amazing: most people think reptiles don’t form lasting relationships, but these two lizards are proving that love can last a lifetime in the animal kingdom.
Will this scaly couple make it to their 28th anniversary? Tune in to this love story to find out why lizard love is totally WOW-worthy!
From the HIBT Archives!
Eventbrite: Julia Hartz
Julia Hartz was building a promising television career at MTV and FX Networks when she sat next to a chatty serial entrepreneur named Kevin at a 2003 wedding. What started as wedding small talk turned into a relationship that would completely redirect her life.
Within three years, Julia had quit her TV job, moved to the Bay Area, married Kevin, and found herself co-founding a company in a warehouse closet.
The idea for Eventbrite came from their own frustration: Kevin wanted to throw a tech meetup but couldn’t find an easy way to sell tickets online.
Existing solutions were either too expensive or too complicated for small events. So Julia and Kevin, along with co-founder Renaud Visage, built a platform that would let anyone create and promote events, handling everything from ticketing to payment processing.
Starting in 2006, they bootstrapped for three years, slowly building a community of event organizers who needed something between free solutions and enterprise-level software. Julia’s television background proved invaluable: she understood storytelling and audience development in ways that helped Eventbrite connect with creators.
Today, the publicly-traded company processes millions of events worldwide, proving that sometimes the best business ideas come from solving your own everyday problems.
See you next time!
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