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What you can learn from Netflix’s biggest mistake

Posted in the following categories: Decision Making, Failure

Imagine a courtroom.

There’s a prosecutor, a jury, and a judge.

The prosecutor uses convincing evidence and polished arguments to show beyond a reasonable doubt that a crime has been committed.

The defendant has no lawyer. He’s not even allowed to present arguments. He sits silently as the prosecution paints a clear picture of him guilty as charged.

The jury, moved by the prosecution’s argument, votes to convict unanimously.

This scenario would be blatantly unconstitutional in most democratic systems. A defendant normally has the right to present a defense.

Yet this scenario happens all the time in organizations across the globe.

When ideas are pitched in most companies, there’s only one team arguing for only one side of the case. We should pursue this marketing strategy. We should launch this new service. We should acquire this promising start-up.

They’ve done their research and have seemingly convincing data and fancy PowerPoint slides where Decision A invariably leads to Outcome B. There’s no one to represent other perspectives or muddy the waters with nuance and uncertainty.

Confirmation bias often looks like scientific data collection.

But instead of looking for data that refutes our hypothesis—which is what scientists do—we fish for support. We collect data that supports only our side. We cook the books and rig the trial so we can win—often without realizing it.

Paradoxically, the smarter you are, the worse this gets. You’ll be better at finding evidence and arguments to support your position, thereby fooling yourself (and as Richard Feynman reminds us, you are the easiest person to fool).

Netflix found itself in this position when it decided to launch the ill-fated Qwikster service in 2011. This, says Netflix CEO Reed Hastings, was “the biggest mistake in Netflix history.” Before the announcement, Netflix offered a single service that combined streaming and mailing DVDs. Hastings saw the writing on the wall—DVDs would soon become obsolete—and decided to spin Netflix’s DVD business into a separate company called Qwikster. This plan would have allowed Netflix to focus on building its future in streaming without getting weighed down by its past.

The announcement provoked one of the biggest consumer backlashes in corporate history. “Not only was our new model way more expensive,” Hastings writes, “but it also meant customers had to manage two websites and two subscriptions instead of one.” As a result, Netflix lost millions of subscribers and its stock dropped by more than 75 percent.

Hastings was humiliated. He describes his decision to launch Qwikster as “the lowest point in my career.” (Even Saturday Night Live made fun of him in a skit).

The humiliation resulted in part because—despite all the talk inside Netflix about the importance of transparency—dissent wasn’t always welcome. The defense attorneys were notably absent from Qwikster’s launch. They had kept quiet even though they had serious misgivings about the idea. One VP told Hastings: “You’re so intense when you believe in something . . .  that I felt you wouldn’t hear me. I should have laid down on the tracks screaming that I thought it would fail. But I didn’t.”

After the failure, Netflix decided to adopt a culture of actively farming for dissent. Multiple systems are now in place throughout the organization to make sure that dissent is unearthed before a major decision is made. For example, a Netflix employee with a proposal will often distribute a spreadsheet asking colleagues to rate the idea from -10 to +10 and provide comments. This isn’t a democratic vote. It’s a way to make it easier to collect feedback, gauge the intensity of dissent, and start a candid conversation. “To disagree silently is disloyal,” as the now-reformed Hastings puts it.

Before you make any major decision, ask yourself, “Is there an attorney on the other side?” If so, court their dissent. If not, actively look for one (“Who will disagree with me?”). If you can’t find opposing voices, manufacture them. Ask yourself, what would Elon Musk do when faced with this challenge? How would Elizabeth Gilbert tackle this creativity problem? How would Seth Godin poke holes in this marketing plan?

Above all, stop fishing for support.

And start farming for dissent.

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