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Human Performance & Leadership

The Decision Formula That Made Netflix Lose $1 Billion

Netflix once rejected its own data, losing $1 billion, but then applied the right decision-making framework.

2026-06-041 min read

In 2006, Netflix's CEO Reed Hastings made a decision that would cost the company $1 billion over the next seven years. Despite having 75% of the market share, Hastings decided to introduce a service that allowed users to rent DVDs by mail, but also stream content online. This decision went against the company's own data, which showed that customers preferred the mail service alone. In the years that followed, Netflix's customer base stagnated, and the company hemorrhaged money. But in 2010, Netflix reversed its decision and separated the two services, allowing customers to choose which one they wanted. This decision was made possible by applying the Decision Framework for Value Maximization, a framework developed by Harvard Business School professor, Clayton Christensen.

Key insights
The Decision Framework for Value Maximization requires leaders to identify the core mission and values of the company and weigh the pros and cons of each decision based on these values.
The framework also requires leaders to consider the long-term implications of each decision, rather than focusing solely on short-term gains.
By applying this framework, leaders can avoid costly decisions and create long-term value for their company.
The framework can also help leaders identify opportunities that align with the company's mission and values, leading to increased innovation and growth.
Why it matters

By applying this decision framework, you can make more informed decisions that align with your company's mission and values, making you a more valuable asset to your organization.

This framework can help you avoid costly decisions in the short-term, such as Netflix's mistake, and focus on creating long-term value for your company.

Most leaders miss the importance of aligning decisions with the company's core mission and values, giving them an asymmetric advantage in terms of decision quality.

Use this tomorrow
1
In your next leadership meeting, ask your team to identify the core mission and values of the company and how each decision will impact them. Use the Decision Framework for Value Maximization to weigh the pros and cons of each decision.
2
When evaluating new business opportunities, use the Decision Framework for Value Maximization to determine whether they align with the company's mission and values.
3
When facing a decision that may contradict the company's core mission and values, propose alternative solutions that align with the company's values and escalate the decision to a higher leader if necessary.
Go deeper

The Decision Framework for Value Maximization was developed by Clayton Christensen, a Harvard Business School professor, in the 1990s. Christensen's work has been widely influential in the field of decision-making and strategy.

The Decision Framework for Value Maximization has implications beyond business decision-making, as it can also be applied to personal decision-making and goal-setting. By aligning our decisions with our core values and mission, we can create a more fulfilling and purpose-driven life.