The mental strategy Netflix CEO Reed Hastings used to grow a billion-dollar business

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On Monday, Netflix announced that the newest contributors to its streaming platform would be former U.S. president Barack Obama and former first lady Michelle Obama.

The news comes less than two years after Mic first reported that Obama had plans to continue a career in digital media after his presidency and only months after Barack Obama appeared as a guest on the Netflix original show, “My Next Guest Needs No Introduction,” with David Letterman. The Obamas’ multi-year agreement with Netflix, which is valued at $143 billion, allows them to produce films, scripted or unscripted series, documentaries and features.

The company recently boasted of high subscriber growth, which, among other successes, sent stock prices soaring. Today, CEO Reed Hastings’ total annual compensation hovers above $24 million and he recently made the 2018 Forbes’ “World’s Most Powerful People” list.

And he boils down the success of his billion-dollar businesses to one ancient decision-making strategy: “first principles” thinking.

The term was coined more than 2,000 years ago by the ancient Greek philosopher Aristotle, who believed we learn more by understanding a subject’s fundamental principles, those “things better known and clearer to us,” according to Terence Irwin’s 1989 book “Aristotle’s First Principles.”

Hastings used first principles thinking to scale Netflix from a DVD-rental service in the late 1990s into one of the world’s most popular streaming services, he explains in an episode of LinkedIn founder Reid Hoffman’s podcast, “Masters of Scale.”

Hoffman says that the decision-making system is popular in Silicon Valley and offers the following definition:

First principle thinking is the idea that everything you do is underpinned by a foundational belief, or first principles. Instead of blindly following directions or sticking to a process, a first principle thinker will constantly ask, “What’s best for the company?” and, “Couldn’t we do it this other way instead?”

Hastings says creativity and innovation were stifled at the software company he started before Netflix: Workers there “were unable to adapt” because of “a bunch of people who valued following the process, rather than the first principle thinking.”

At Netflix, he approached things differently. He knew the advent of broadband internet across the U.S. would pose a challenge to Netflix’s DVD-rental business, for example. so, to encourage more creativity, he decided to staff Netflix with first principle thinkers and told them he valued open-mindedness and new ideas.

“We ask people to do what you would think is best for the company,” Hastings tells Hoffman. “We don’t give them any more guideline than that.”

If this method of reasoning frustrates them, Hastings says, then they probably are not a good match for Netflix.

“It seemed inevitable to [Hastings] that streaming entertainment would eclipse DVDs, just as surely as the combustion engine eclipsed the horse and carriage,” Hoffman says. So he prepared for that eventuality in advance, and the risk paid off.

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