Hubris: extreme pride or arrogance. Hubris often indicates a loss of contact with reality and an overestimation of one’s own competence or capabilities, especially when the person exhibiting it is in a position of power.

Can you say Reed Hastings?

Hastings is the CEO of Netflix. I believe that he provides us with an excellent model for how a leader should not behave.

Since being launched in 1997, Netflix was frequently used as an example to inspire entrepreneurialism and build a business through customer service and customer care. Conceived by a few people with a good idea, Netflix took on the giants in the video rental industry. It was given a lot of credit for the ultimate demise of Blockbuster and other similar national chains.

Netflix created an entirely new way for families to rent movies for use at home. Much like the shoe retailer Zappos, which was also built by a dedicated CEO, Netflix combined technology and new approaches to the delight of customers. Ultimately, customer numbers rose to about 25 million this year.

Hastings and his team were on to something. In the business world, Hastings was viewed as:

  • A shrewd management guru
  • A leader who could anticipate customers’ needs and do great deals with bigger organizations
  • Someone who provided more benefits for his customers and in return made them very, very loyal

It was commonly accepted that Netflix subscribers were so well-served that they were unlikely to leave the service, consequently they would continue providing about $12 a month, day in day out.

Netflix was rewarded with a massive valuation on Wall Street. Share prices rose to nearly $300 at the end of last June.

Noticeable at the same time as this was going on, CEO Hastings started appearing more and more frequently in magazines, on panels, and at financial forums where he’d been invited to share his wisdom for the benefit of others.

He started well, often showing an attitude of “I’m just a regular guy who understands that if you treat your customers and employees with respect, then the marketplace will reward you.” However, over time, his messages stopped being about the marketplace, the customer, and the employee. They became all about using technology to take over the world. It became clear that he was starting to believe that both he and his company could do no wrong.

His success “model” shifted from people power augmented with great algorithms and technology, toward just the tech and math. From a leadership observer’s perspective (mine), this shift was reflective of his sense of entitlement and hubris.

In July he showed his true colors by announcing a dramatic change in the customer value proposition. Based on internal forecasts that most customers would swallow this change and accept one of two new options, he showed that he was OK with the loss of hundreds of thousands of loyal customers — stating that the math showed Netflix would make more money without those people.

The market reacted quickly: Netflix has lost $11.6 billion since that time. At this point, nearly 800,000 subscribers have left Netflix. Stock prices, which had been trading at close to $300 each, fell to about $75 this week.

Hastings has lost his credibility as a management guru. Worse — and more telling — he has been reluctant to say he made a mistake. He has instead focused on the prospects for a “financial rebound,” which he says will come as a result of entering new marketplaces outside the United States. He doesn’t talk much about creating “delightful customer experiences” any more.

My forecast? This catastrophe will end up being one of those situations where a founder and leader ultimately gets forced out because he lost his direction and forgot his original values.

I am reminded of a lesson I learned from the late cosmetic and fragrance magnate Estee Lauder, who once told me why her organization would continue to succeed long after she left the planet: “Mr McKee, the trick to long-term success boils down to how you treat others. Do them right and they’ll reward you. Treat them poorly and they’ll abandon you. It’s not magic.”

That’s still a great message for anyone in a leadership position.