THE BLOG
04/26/2010 05:12 am ET Updated May 25, 2011

Does Netflix Represent American Renewal?

Can American renewal be driven by one entrepreneur's annoyance at paying a $40 late fee to Blockbuster?

In a week where the ultimate and best example of a modern politician, Evan Bayh, declares the system so broken that he has chosen to disengage, can hope be found in a little envelope with a DVD inside?

In Silicon Valley, it can.

Last week I saw Reid Hastings, the founder and CEO of Netflix, interviewed at the Churchill Club by Michael Eisner, the former CEO of Disney.

After a year when it seemed like no one in America was serious about dealing with any issues, and a decade when we've experienced our worst absolute and relative economic performance in history, not to mention decline in the apparent integrity and confidence in many major public institutions, it was delightful to see someone just focus and get down to business.

Even if (or especially if) that business is no more complicated than putting DVDs in envelopes and sending them through the US mail and getting them back.

Netflix, which is now close to a $2BB company, was started and built on the classic Silicon Valley entrepreneurial model, which I'd summarize as:

  • Focus on a problem that bothers a bunch of people, including you, and turn the problem into an opportunity
  • Think about a technology that can improve it, ideally taking advantage of large investments and/or structural changes enabled by others
  • Identify the smallest possible useful problem you can solve to get started, while painting a broader vision of what you can do in the long term
  • Figure out who the stakeholders (in the case of Netflix, the Post Office, movie companies) who might benefit from your success
  • Identify and engage the folks most likely to use your product/service initially
  • Believe in what you're doing and act with integrity
  • Add good people (and trust them) and ideas -- grow

(To state the obvious, almost the opposite of way the political system now deals with issues, with health care reform being a case in point.)

Netflix is now crossing three important milestones. First, it is a much more powerful and effective network than Blockbuster, so while Blockbuster is reaching a negative Tipping Point of insufficient stores and declining coverage, Netflix can predictably meet your needs wherever you are. Second, the development that Netflix was originally built around (but which they had the presence of mind to recognize was premature and so they shifted to the mail strategy), broadband to the home to allow direct streaming, is now happening, opening up huge new opportunities. Third, Netflix's volumes are big enough that it has become an important channel for Hollywood, and so can influence or enter the content business.

The subtext of the evening was of course the fact that Reid, a Bowdoin graduate, previous software entrepreneur and until recently, non-entity in Hollywood, was being interview by Michael Eisner (there because he has now started in his own small production/distribution company), who was in many respect the iconic CEO of the 1990's. The Disney-Cap Cities/ABC merger was the biggest deal of the '90s, the 1980's Bass Brothers investment in Disney was the beginning of the era of private equity, Eisner was arguably the first hyper-compensated CEO, and Eisner had succeeded the even more iconic Walt Disney as the host of Disney's Sunday evening program. To borrow from Willem Dafoe in Platoon, the worm had definitely turned.

Among the other contrasts between Old Economy and New Economy CEOs, Eisner was non-plussed at Netflix's vacation policy, which boils down to employees can take whatever vacation they want. According to Hastings "we don't ask employees to punch a clock, so we don't know on any given day whether they're working 9 to 5 or 5 to 9; so we trust them equally to take the right amount of vacation."

In addition to his role at Netflix, Reid is active in California in school reform and charter schools, and points to the unpredictable and unstable governance of elected school boards as a root cause of school dysfunction.

I've been a member of the Churchill Club for 17 years. It takes its name and inspiration from Winston Churchill, who was, among his other accomplishments, a great innovator in both technology and tactics (he championed the tank as a way to break the bottleneck of trench warfare in World War I). The Churchill Club highlights important new developments like Google (more than a decade ago) or the iPhone, and explores their implications in a serious way. (Full disclosure: I am presenting at the Churchill Club on March 3 in Palo Alto in a program entitled Innovation & Change, A 'New Normal' for the Legal Industry" )

Before I get my shot, this Thursday Arianna Huffington will also be at the Churchill Club. I've had the chance to talk to many friends in the newspaper world over the last month, and most are very disillusioned, so I'm thrilled to be connected to an entrepreneur like Arianna who is finding a way to make things work.

I have a broad theory which I'll share. At this point the two best-regarded institutions in America are the military and the entrepreneurial culture. The political class, and the other folks who make their living primarily by selling fear and arbitrating between systems that don't work very well (think the media, investment bankers or lawyers) are increasingly discredited, because they operate within a system that is too easy to manipulate and therefore low in fundamental integrity. Just as 40 years of Presidents shared a common experience of having served in World War II, going forward I think we'll see a period where leadership is dominated by folks who were either Lieutenants or Captains in Iraq or Afghanistan, or entrepreneurs, because to succeed they had to execute something real.

Thank you Reid Hastings for pepping me up!