Sep 30, 2017
4 More Tips on Making “Wicked Hard Decisions”
I learned a lot about decision-making through both success & failure in my former role as VP Product at Netflix
They’re not called “Wicked Hard Decisions” for nothing: leading a company or product organization is hard. Discovering the locus of activity that delights customers in hard-to-copy, margin-enhancing ways requires a blend of art and science informed by intuition formed through years of both success and failure. But that’s what makes the job fun.
I do a talk with a series of “What would you do?” cases about making tough decisions at Netflix. Teaching the cases has helped me to tease out four more decision-making principles. (If you haven’t read the first six principles, click here.)
For many tough decisions there is no right or wrong answer. What is important is learning as much as you can about your customers, business, and industry to improve the odds in future decisions.
Netflix spent a year preparing for the launch of its DVD-by-mail service in the UK and then a week before launch cancelled the project due to a rumor that Amazon was launching its own DVD-by-mail service in the U.S. Was it the right decision? It’s impossible to know. But we learned the importance of focus, of saying “no,” and ignoring sunk cost as we chose to focus on our core U.S. business. We also knew that once streaming was ubiquitous, we’d be in a good position to expand worldwide.
The decision Netflix made to separate its DVD-by-mail and streaming service in 2011 was a huge mistake. Netflix was lampooned on late night TV, lost hundreds of thousands of members and their market cap dropped from $18B to $5B. It was a high stakes, poorly executed, decision.
CEO Reed Hastings acknowledged the mistake. He advocated that self-inflicted wounds were much easier to fix than competitive damage and that if the company stayed focused on building customer value, Netflix would regain its health. Rather than beat themselves up for making the mistake — which discourages future risk-taking — the team learned from its mistake, then moved on. Today, Netflix has a market cap of $80 billion and more than 100 million members worldwide.
Today’s leading consumer internet tech companies — Google, Amazon, Facebook, and Netflix — are all about twenty years old. Each of these companies got to this stage by embracing risk. On the other hand, there are dozens of companies that were a big deal on their tenth birthday, but are a shadow of their former selves today. Blackberry, Yahoo!, and MySpace come to mind.
I was so impressed by Facebook when they celebrated their eighth birthday. That year they went public, acquired WhatsApp for $19 billion dollars, experimented with drones to provide ubiquitous internet access, and made large investments in VR through their $3B acquisition of Oculus. Facebook understood that in order to build a great company they needed to maintain the same level of risk-taking that established them as a startup. Playing it safe won’t get you there.
Today, I ask companies to describe the key projects they are engaged in. Then I ask which projects are optimizations and which are bold bets that might provide a 10x return. Generally, it feels good if the optimization/innovation split is 80/20. When it’s time to make decisions about these bold bets, acknowledge they are high risk but carry a greater prospect for substantial reward. Lean in to the risk.
The commitment to quickly shift from decision to fast execution — to “decide and do” — requires focus and a degree of bravado as you navigate the unknown. As great exec teams develop they invariably make better decisions. In some cases, however, the team grows overconfident and makes stupid mistakes.
In explaining his decision to separate the streaming and DVD services via the launch of the Qwikster DVD-by-mail service, Reed Hastings admitted, “I messed up,” then speaks of his lack of humility:
“It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology.”
Before the Qwikster debacle, Netflix made a series of great decisions. Two examples: they partnered with hardware manufactures to enable “Netflix Ready” TVs worldwide then made a bold, highly successful bet on original content through their $100M investment in “House of Cards.” I think these highly successful decisions fueled overconfidence, however, leading to the disastrous decision to split the DVD and streaming product in two.
These ten decision-making principles provide a framework for making tough decisions, but there’s no one-size-fits-all approach. The key is thinking about the principles and identifying which apply to your decision. In the long-term, you’ll develop more consumer insight with each decision you make, eventually leading to high-quality, high-velocity decision-making. Newly-formed management teams get it right about half the time. A world-class management team will get it right 70% of the time. And if a team gets it right more than 70% of the time, there’s likely something wrong: they’re not taking on enough risk.
In his 2016 annual report letter, Bezos reinforces both the importance and challenge of the product leader’s job:
(Being an innovative company) requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen…
…but you, the product or service owner, must understand the customer, have a vision, and love the offering.. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste…
Product leadership is a tough job, with a diverse set of skills required. But with each decision you make the odds for success get higher, given your growing knowledge of consumer behavior. Jeff Bezos has been at this more than 25 years. You’ll get there, too.
I’d love to hear your feedback on this post, as well as your experiences in making tough product and business decisions. And if you’d like to learn more about my “Wicked Hard Decisions” talk, click here. (If you missed the first 6 decision-making principles, click here.)
Gib
Gibson Biddle
(Many thanks to Florian Fischetti, Ashita Achuthan, and John McMahon for their edits, and to John Russell for graphics help.)
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