No Rules Rules – Netflix and the culture of Re-invention

Author: Reed Hastings (Founder-CEO of Netflix), Erin Meyer (Professor of INSEAD business school)

Genre: Management, Biography

Netflix is one of the world’s most successful start-ups. In just about 20 years, it has catapulted to USD25 billion sales, USD200bn+ market capitalization (more than the entire Indian pharma sector), 200mn+ paid users globally, one of the top 10 most trusted international brands and so on. Its stock is famed to be THE top performing in S&P500 giving almost 4000% return in the last decade! Its Founder and CEO, Reed (himself worth $5bn. Sold his first startup for $700mn) credits his success largely to the “people culture” he has been able to establish in Netflix. Over the years much has been written about this culture (including in HBR) and top silicon valley veterans say that this is the most important document coming out of silicon valley. The book talks of this culture. I was intrigued by their philosophy of hiring the aboslute best and paying them top 1% of the market. My colleague Ashish Musaddi, Head of HR for Cipla International Markets, prepared and circulated a summary within the team.

Reproduced here with Ashish’s permission.

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While we all speak about valuing people over process, emphasizing innovation over efficiency and having fewer controls, Netflix went one step further: they created a culture of “No Rules Rules” to promote flexibility, employee freedom and innovation instead of error prevention and rule adherence. Reed believed that if you give employees more freedom instead of developing processes to prevent them from exercising their own judgement, they will make better decisions and it is easier to make them accountable.

The 3 stages of creating an organization which attracts better talent, values accountability and stays nimble.

1.Build Talent Density

When Netflix was forced to lay-off employees they noticed something unusual: the remaining people were doing far more work, far more passionately even with 30% less employees. For top performers, a great workplace is not about a lavish office, a beautiful gym or a free lunch – it is about the joy of being surrounded by people who are both talented and collaborative. So Netflix made a clear policy – hire the very best employees and pay at the top of the market (often top 1%!) and coach the managers to have the courage and discipline to get rid of any employee displaying undesirable behaviours or not performing at exemplary level.

2. Increase Candour

Say what you really think with positive intent, openly voicing opinions and feedback instead of whispering behinds one another’s backs. This reduces politics and allows for faster decision making. “High Performance + Selfless candour = Extremely high performance”. It is important that the boss gives a lot of feedback and vice versa – the employees giving candid feedback to the boss. Have feedback as an agenda item in your meetings. Follow the 4A approach for giving feedback – Aim to Assist, Actionable, Appreciate, Accept or Decline.

3. Remove controls

An environment which operates basis controls will never foster innovation. Netflix operates on a fundamental principle of “trust until it is broken” and once its broken it is broadly communicated to make an example. Netflix eliminated controls starting with Vacation (people can take as many days whenever they want, as long they get their annual targets met) and then with Travel & Expense policy (“spend as you would spend your own money”). They also institutionalized an exhaustive auditing and reporting mechanism at the backend. They followed very basic ground rules: “Always act in the best interest of the company, Never do anything that makes it harder for others to achieve their goals, Do whatever you can to achieve your own goals”

Lead with Context not Control:  “When you tell people you trust them, they will show you how trustworthy they are.”

The next step to creating high talent density is to build “Decision- making muscles” by Leading with Context. As a leader, provide all the information to enable the team to make great decisions and accomplish goals without oversight or controlling their actions. “When one of your employees does something dumb, don’t blame them,  Instead ask yourself what context you have failed to set? Are you articulate and inspiring enough in expressing your goals and strategy? Have you clearly explained all the assumptions and risks that will help your team make good decisions?”

Creating a Culture of freedom & accountability

The Rockstar Principle – Hire the best and pay top of Personal market: Research has it that the best performers outperforms the average counterparts by a factor of two or three. An excellent software developer outperforms an average one by 10 times, sometimes expressed as 10xer. These Rockstars are known to work faster, harder, solve more problems and get more done than any average employee. The choice is to have 5-10 average performers or 1 Rockstar. Retaining these Rockstars needs a constant watch on the market and keep paying at the very top. Implement the “Keeper Test”- Always ask yourself  “If a person on your team were to quit tomorrow, would you try to change your mind? Or would you accept their resignation, perhaps with a little relief?”. If the answer is latter, you should give them a severance package now, and look for a star, someone who you would fight to keep”.

Open the Books: Foster complete transparency. There is no better way to build trust quickly than to shine a light directly on a would be secret – “sunshining” the secret. Increase transparency by sharing quarterly financial data, org restructuring, glaring mistakes etc  with employees to increase the amount of responsibility people take for the company’s success. “whisper wins and shout mistakes”. Sunshining on mistakes, be it even a leader, encourages everyone to think that making mistakes is normal. Self-disclosure builds trust, seeking help boosts learning, admitting mistakes fosters forgiveness and broadcasting failures encourages people to act courageously.

No decision-making approvals needed: Don’t seek to please the boss, seek to do what is best for the company. Give freedom to exceptional people to implement bright ideas that they believe in, innovation will happen. Socialize big ideas and “farm for dissent” , actively seeking out different perspectives before making any major decision. Getting it perfect does not matter, what matters is moving quickly and learning from what you are doing.

Learn from failures: For projects/ ideas that don’t succeed, be candid about your failed bets and talk about the learning, Don’t make a big deal about it – When a bet fails, the manager must be careful to express interest in the takeaways, but no condemnation – nobody will scream, and nobody will lose the job. Sunshine the failure – it is about learning, and taking responsibility for your actions. To survive a big mistake, you must lean all the more into the sunshine. Talk openly about it – you will be forgiven.

For more information refer to the Netflix Culture deck which has a set of 127 slides – though initially used internally it was shared on the internet in 2009 and became a major sensation –https://www.slideshare.net/reed2001/culture-1798664. Their culture and values are transparently detailed for everyone who wants to apply in Netflix: http://jobs.netflix.com/culture

Why you should read this book: While there are many learnings that we can take from what Netflix did to reinvent their culture, it is not for everyone. In Netflix’s creative context, the difference between top performer and average performer was significant and hence they chose to consistently pay in the top 1% to these top performers. Deeper, older, more regulated organizations may find this difficult to implement. [There have also been naysayer articles (Wall Street Journal) saying how this same famed Netflix culture is also “ruthless, demoralizing and transparent to the point of dysfunctional.” Hastings has said no to employee job security saying “You gotta earn your job every year at Netflix,”]

Goodreads Links: No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings | Goodreads