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3 leadership lessons from the slide of Netflix

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in Centerpiece,Leaders & Managers,Leadership Skills

Last year, Netflix CEO Reed Hastings was on the cover of Fortune as its Business Person of the Year. This year, he’s getting slammed for what he acknowledges are a series of poor decisions and mishandled customer communications.

After raising the price of the Netflix DVD and movie streaming package over the summer, Hastings publicly apologized but didn’t change the terms of the deal. Then he announced that Netflix was going to be just for streaming movies. A spin-off company, Qwikster, would handle DVD rentals.

Customers hated that idea and Netflix killed Qwikster a few weeks later. Still, Netflix lost 800,000 customers in the past quarter. The company’s stock declined about 35% on two consecutive days in late October.

Hastings has given a couple of interesting interviews to the New York Times about the situation.

Here are three lessons to learn:

1. Trust and loyalty are fragile things: People loved Netflix because they could keep their movies as long as they wanted for a flat monthly fee. None of those annoying late fees. Netflix customers loved and trusted them because the company made their lives a little more enjoyable for a nominal cost. The new changes broke that quickly. People trust and have loyalty to companies when companies live up to their promises over time. With the changes they made and the way they made them, Netflix broke its promise. Customers walked.

2. Don’t get blinded by the data. Hastings talked a lot in the Times about how the data showed that DVD rentals had probably peaked and were declining. As he found out, the data didn’t show how people felt. His comments in the interviews suggest that his decisions were largely driven by the data. Leaders have to tune in to the people behind the data.

3. Stay curious. Ask broad questions. Listen. When Hastings told a friend he was going to spin the DVD rentals out of Netflix, the guy told Hastings it was a terrible idea. Hast­­ings ignored his friend because he thought CEOs shouldn’t put much stock in their friends’ opinions. When the company ran focus groups on Qwikster, all they asked about was what people thought of the name.

In the Times article, Hastings referred to some of the decisions he’d made as arrogant. That seems fair. One way to avoid the arrogance that can come with success is to stay ­curious, ask broad questions and listen.

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