Reed Hastings says he learned why companies aren’t families after laying off one-third of Netflix: ‘You would never lay off two of your kids’

Long before becoming a Hollywood mainstay with a market cap of over $315 billion, Netflix was struggling to stay afloat.

After the dot-com bust, the then-DVD rental company was forced to make its first major round of layoffs in 2001, cutting roughly one-third of its workforce.

For Netflix cofounder Reed Hastings , the experience drove home a lesson about how to think about a company: It may be a tight-knit team, but it isn’t a family.

“People respect great teams, and they respect families and how we operate,” Hastings recently told Semafor .

“But if you describe yourself as a family at a company, you better not ever do a layoff.

You would never lay off two of your kids, right? Then people get very cynical if you say it’s a family but don’t operate that way.” Netflix soon found a path forward, capitalizing on the rise of DVD players— pivoting to a subscription-based DVD delivery service —and going public in 2002.

But Hastings argued that getting too close makes employees feel protected, even when their performance falls short.

“We realized, wow, maybe we should do a one-third layoff every year,” the 65-year-old said.

“And of course that’s impractical—but we said, how about if we keep the bar high and really think about us as a championship sports team rather than a family.” Hastings, who has an estimated net worth of $4.4 billion, served as Netflix’s CEO from 1999 to 2023.

He then became chairman but stepped down earlier this year.

Netflix managers use a ‘keeper test’ to identify top talent—and ‘part ways quickly’ with employees they wouldn’t fight to keep Like most major companies, Netflix has endured rounds of layoffs throughout its history.

But Hastings said the goal hasn’t been simply to cut costs or reduce headcount.

It’s about making sure the company has the right roster to compete—and making changes when it doesn’t.

“If you say it’s like a championship sports team and we’ve got all these competitors and we want to win the championship, then people understand why the coaches make changes throughout the year to try to do their guess of the best way to win the championship.” Today, Netflix defines success by performance, not seniority, tenure or loyalty.