The Exchanges

Q you, because you were a young guy, when you started this, you were like 31, 32. How did you start to manage that side of the business? Because you were making this thing and writing a paper, explaining it, thinking deeply about it, but there's another whole other side to it, which is a business, which is the people that you bring in and then that you have to manage.

A Yeah, um, that was my MBA is essentially was pure software. Uh, and luckily the products were amazing because my management was not. I only really had one gear, which was work hard, and so whenever things got harder, you know, difficult or challenging, I would just work more, so I would, you know, be coding at night, um, and then, you know, trying to be CEO in the day, but I looked haggard, you know, I smelled, I hadn't showered, uh, you know, it was sort of not a very inspiring look. Typically, you know, your Salesforce and that kind of business is very important. Um, and unfortunately I had little grasp of who's the right type of person to run the Salesforce. And so I kept hiring the wrong people and then taking a year to figure that out. And so we had a new head of sales every year, five years in a row, which is chaos in enterprise software. And yet, despite that, um, we doubled sales every year in that time. So again, that was the strength of the products. Um, but to say it was unevenly managed would be generous.

AI assessment note: “I only really had one gear, which was work hard”

Q because, you know, I asked you earlier about your previous companies. You said sometimes, you know, when you're chopping wood, you can't sharpen the axe. In this case, clearly you took the time to sharpen the axe. So how did this, uh, sort of approach to building culture and building, uh, An environment, uh, around excellence, some people would say, um, mercenary culture. How, how, how did you develop that?

A Um, the core of it was if you had incredibly talented people, you didn't need a lot of process and rules. Netflix was anti-process and rules and pro-talent density. And then to get talent density, we modeled it on a championship sports team and they had to swap out players. And that was a normal part, uh, of the ethos. And so that contrasted with the notion of company as family, you know, you're all like my family, that kind of CEO talk. But then you go and lay someone off, which, you know, if you were on hard times, you wouldn't say, we're gonna lay off your sons, you know, your daughters get to eat, and you know, um, you know, our, our ethos in family is around undying loyalty. That's what we admire. And so I realized, oh, it's really that we want to organize as a professional sports team and not a family. And lots of people were operating their Silicon Valley business that way, but none of them admitted it or not many. And so the shock was this, the sort of resonated because it was the truth of the, what we aspired in much of the competitive ecosystem of team, not family, but no one had said it so directly.

AI assessment note: “we modeled it on a championship sports team and they had to swap out players”

Q So, how did the idea to make original content come about? Was that in response to where you saw the The, this sort of whole industry headed that if you didn't do that, you would just, and you were just a rental streaming rental service, then your business wouldn't survive.

A Well, every cable network, which is a subscription business, had started on other people's content, build some audience, and then start to add their own content. HBO was built on other people's content, and then got good at original programming. So Again, it was a very well-trod path. And when Ted Sarandos came in, which he joined us in 2000, um, he was the one who sort of articulated, you know, eventually we're going to want to do original content. And then we actually started in 2005 doing original content on DVD. And we didn't have a big enough subscriber base. And so after two years, we closed that down. That was red envelope entertainment. We closed that down in 2007, and then we reopened it essentially with House of Cards. Uh, I believe we commissioned that Ted did in 2010, um, and then it came out in 2013.

AI assessment note: “Again, it was a very well-trod path. And when Ted Sarandos came in”

Q own company. You called it Pure Software. And, and I'm wondering, I mean, did you feel ready to, to do that at that point? I mean, I mean, clearly you'd made connections at, at, you know, previous startups and, and maybe, you know, in your previous job and, and at Stanford. Um, but like, how did you start to build a team and, and to start to build a company?

A I was underprepared, um, for sure. But I would say one of the things about being around Stanford is, Is all these pretty normal people create companies and you meet them. And so it doesn't seem so impossible at all. Um, but I didn't know specifically how to do it. I didn't understand what incorporation was or how to get a lease or anything. The first year was trying to do a proof of concept. So I spent a year in a cold cabin in the Santa Cruz mountains in La Honda, uh, where we just had a wood fireplace. Um, and And had bought a Sun Microsystems computer, uh, and at the time that was like as expensive as a car.

AI assessment note: “I was underprepared, um, for sure.”

Q video rentals was, uh, was like a, a blue ocean? I mean, yeah, and Blockbuster, you know, I, I remember going to Blockbuster sucked. You know, you go to Blockbuster and there'd be like, you know, a hundred cassette, you know, a hundred, uh, boxes for a movie you don't want to see. And the movie you want to see, you couldn't get. And then you'd pay late fees, right?

A They had out of stock and various problems. One advantage is that relative to Amazon, the nice thing about rental is because you got to return the good. It's a very different logistic path than selling things. So then it makes less sense for Amazon to invest in because it's only one category that does this. You know, you don't rent computers or bicycles or other things where they get shipped and shipped back. And it was a large enough business to be interesting. Blockbuster was about five billion in revenue, but not so large as to attract Amazon, uh, you know, and others into it. So, you know, it was, uh, that, that, that crosshairs made it potentially interesting from an e-commerce standpoint.

AI assessment note: “that crosshairs made it potentially interesting from an e-commerce standpoint.”

Q So, I mean, early 19 eighties in Swaziland, god, I mean, no internet, and I can't even imagine, like, you'd probably talk to your parents, your family, like, once a month, maybe, if you were lucky, like, If there was a payphone around?

A I think once a year. Um, yeah, there was no payphones. Um, you, you have to travel to the capital to do that, uh, to call. Um, so yeah, very isolated, beautiful country. Um, came home once during that for my sister's wedding, and, um, that was very hard because, uh, you know, you, um, get to, uh, Johannesburg and you fly, I don't know, And then it's, you know, a three-day wedding that's elaborate and champagne and dress up and a lot of, you know, just, uh, magic. And then you jump back on the plane another 18 hours back, and then you're in the classroom and the wind's blowing and it's quiet. There's, you know, uh, was no electricity. Yeah, the contrast was hard. And when I came back from that week, I came close to quitting. But I, you know, you make your incredible connection with your kids, and, uh, I ended up sticking it out, but that was the only real hard time in it.

AI assessment note: “I think once a year. Um, yeah, there was no payphones.”

Q Probably a lot of people just assume, oh, you know, this is a, you know, fun little side project for Reed. I mean, can you explain this? What, what was the motivation to, to manage a ski resort?

A Um, we had a home there, so we were skiers there, but we were one acre customers. And I had noticed that the resort was, uh, not very successful. And so I started to get to know that spring, the owners, uh, to see where I might be able to help. And in April, uh, one of the two owners sold to me and in November, the other one did. And so for me, it's a passion play of creating a real estate, a place of beauty. Um, real estate's a different skill set. You know, you, you build a neighborhood, you put in roads and, and sewers, and then you try to sell the lots. And that's the basic play. And this year we had a big success and we sold out. So, you know, think of it as a big resort like heavenly, um, in, in Tahoe for only 650 families and their guests. And then we're also running the public resort, uh, which is a normal public ski mountain with season passes and, uh, et cetera. Um, the public ski resort's good, but it's not an exciting business. It's a hard, uh, you know, it's like running a restaurant or something. The private side is, um, you know, much higher revenue, much more exciting. And so I think of it like, uh, my friends, D bomber who bought the Clippers, um, you know, it's kind of like buying a sports team, you know, it's a passion, but it's not some fundamentally around the profits it's around, um, competing and winning and succeeding. And for me, this is totally differe…

AI assessment note: “for me, it's a passion play of creating a real estate, a place of beauty”

Q that corporate America was heading in, it still does, right? I think it's changing a little bit, but for the last 20 years, many companies, certainly tech companies, were talking about their employees like family, and that model can work, and it can work really well, but you think that that model is, it sort of naturally results in inefficiency and in In, in just waste and lack of productivity?

A Well, um, families are dysfunctional in many ways. And so, yes, I think it's a inferior model. And again, team is not cold. You know, a good team really has highly functional people with good relationships between each other. They pass the ball well, um, sacrificing their own opportunity to score to so that because the other person's got a slightly better shot. So, you know, you, you need incredible cooperation. And we said, you know, today, many people want to be team players, but not everybody has the skills to do a blind pass. So a blind pass in soccer or basketball is, is throwing the ball without looking at the player because you've worked so well together, you have a high confidence where they're going to be. And so we would talk about that as the skill of teamwork, um, which is building trust, Um, proactively letting each other know about things, all kinds of close cooperation that were a joy to be part of. You know, I, I think people did focus. We had a line in there, um, that adequate performance gets a generous severance package. So that was sort of the acid line. The typical model is the job is a property, right? And you have to screw up and the company has to prove that to take away that That property, right? And what we were saying is, no, in a sports team, it's very clear that adequate performance, you know, uh, generates a cut and someone else gets a chance to tr…

AI assessment note: “families are dysfunctional in many ways. And so, yes, I think it's a inferior model.”

Q Um, and then I, I guess pretty soon after that, you got a job at a startup in, in the, in the Bay Area. What, what was it? What did you do?

A Yeah, uh, we were doing, um, AI for customer support systems, um, and I was working on the underlying operating system essentially for this, and, um, we had a super compelling CEO, and he had a great vision, and I was the, uh, 28, twenty-nine-year-old engineer who worked all the time, um, you know, loved doing, uh, all-nighters and, You know, was prolific in writing lots of code. And ultimately, um, one customer ever bought the software and that customer never installed it. So it was this scarring lesson because, you know, I had worked so hard and written all this beautiful code that basically was now getting thrown away. But the CEO I learned a lot from, the thing I learned from him most was humility and the value of that, and one day I came in very early, you know, four or five in the morning, and I used to have a lot of coffee cups spread around my cubicle, you know, from the last four or five days, and every now and then the janitor would wash them all and leave them cleaned on my desk. I didn't think much of it. Um, and then that morning I came in early, four or five, I go into the toilet, um, and I see my CEO there, um, also in early, uh, and I see a lot of coffee cups, uh, and I realized suddenly he's been the one, uh, washing them all year.

AI assessment note: “we were doing, um, AI for customer support systems, um, and I was working on”