A Netflix exec explains the simple but painful process that allows the company to thrive

The biggest mistake most companies make when choosing a strategy is "listening to the Hippo — the Highest-Paid Person in the Organization," Neil Hunt, chief product officer of Netflix, told attendees at the Churchill Club in Santa Clara, California.

The club presented Netflix with one of its prestigious annual awards on Thursday. Netflix won its Game Changer Award for forever changing how the world watches TV and movies.

Hunt was on stage to accept the award and interviewed by Foundation Capital's Paul Holland. (Holland was a Netflix venture investor who had worked for Netflix founder Reed Hastings at his previous company, Pure Software.)

Hunt says the other mistake companies make is to listening to their customers, because "customers are poor at knowing what they need."

At Netflix, data rules the company. In today's online, cloud computing world, where this philosophy has given rise to "data-driven" companies like Google and Facebook, such advice seems common sense.

But in 1997, when Netflix was founded as a subscriptions service that delivered DVDs through the mail, it was a radical idea.

Hunt says that really committing to this idea means loads of A/B testing and a willingness to accept a high rate of failure.

For instance, a major design change involved 600 A/B tests, of which only "150 had a material win," meaning the other 450 bombed.

This kind of testing requires painstaking commitment. It also means that changes and new product rollouts would be "very incremental, driven by customer feedback."

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