• Fortune, Thursday, January 29, 2009 11:15 AM

It all started with a sour experience -- as so many good business ideas do -- and turned into lemonade. In 1997, Netflix founder and CEO Reed Hastings got hit with a $40 late fee for a VHS-tape rental of "Apollo 13." But DVDs were on the way, they proved easy to mail, and his rental-by-mail business was off the ground.

Initially, the concept was not subscription-based. Hastings decided to try a free trail for prospective subscribers and got a 20% conversion rate to paid, which was good enough to keep going. Now Netflix gets up to 90% renewal.

The secrets of his success are to "target a specific niche"; "stay flexible"; "never underestimate the competition," and "there are no shortcuts." Regarding the latter, Hastings tells Alyssa Abkowitz: "Occasionally, great wealth is created in a short amount of time, but it's through a lot of luck in those situations. You just have to think of building an organization as a lot of work."

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