No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

It was not obvious at the time, even to me, but we had one thing that Blockbuster did not: a culture that valued people over process, emphasized innovation over efficiency, and had very few controls. Our culture, which focused on achieving top performance with talent density and leading employees with context not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us. Netflix is different. We have a culture where No Rules Rules.

Policies and control processes became so foundational to our work that those who were great at coloring within the lines were promoted, while many creative mavericks felt stifled and went to work elsewhere.

If you give employees more freedom instead of developing processes to prevent them from exercising their own judgment, they will make better decisions and it’s easier to hold them accountable.

If you build an organization made up of high performers, you can eliminate most controls. The denser the talent, the greater the freedom you can offer.

When talented staff members get into the feedback habit, they all get better at what they do while becoming implicitly accountable to one another, further reducing the need for traditional controls.

We learned that a company with really dense talent is a company everyone wants to work for. High performers especially thrive in environments where the overall talent density is high.

the adequate ones will sap managers’ energy, so they have less time for the top performers, reduce the quality of group discussions, lowering the team’s overall IQ, force others to develop ways to work around them, reducing efficiency, drive staff who seek excellence to quit, and show the team you accept mediocrity, thus multiplying the problem.

it is tantamount to being disloyal to the company if you fail to speak up when you disagree with a colleague or have feedback that could be helpful. After all, you could help the business—but you are choosing not to.

Few people enjoy receiving criticism. Receiving bad news about your work triggers feelings of self-doubt, frustration, and vulnerability. Your brain responds to negative feedback with the same fight-or-flight reactions of a physical threat, releasing hormones into the bloodstream, quickening reaction time, and heightening emotions.

Our brain is constantly on the watch for signals of group rejection, which back in more primitive times would have led to isolation and potentially death. If someone calls out a mistake you are making in front of your tribe, the amygdala, the most primitive part of the brain, which is on constant watch for danger, sets off a warning: “This group is about to reject you.” Our natural animalistic impulse in the face of this is to flee.

focusing first on something much more difficult: getting employees to give candid feedback to the boss.

Ted Sarandos, Netflix’s chief content officer,

responsible for every television show and movie available on Netflix.

in Hollywood. Ted is not a typical media mogul. He didn’t finish college, and he acquired his film education working in Arizona video stores.

Time off provides mental bandwidth that allows you to think creatively and see your work in a different light. If you are working all the time, you don’t have the perspective to see your problem with fresh eyes.

if you want to remove your vacation policy, start by getting all leaders to take significant amounts of vacation and talk a lot about it.

We had proved that with the right employees, clear modeling from management, and enough context setting, we could get along perfectly fine without a bunch of rules.

ACT IN NETFLIX’S BEST INTEREST That works better. It is not in Netflix’s best interest that the entire content team fly business from L.A. to Mexico. But if you have to take the red-eye from L.A. to New York and give a presentation the next morning it would likely be in Netflix’s best interest that you fly business, so you don’t have bags under your eyes and slurred speech when the big moment arises.

Studies show that well over half the population will readily cheat the system to get more for themselves if they think they won’t be caught.

the best programmer doesn’t add ten

“A great lathe operator commands several times the wages of an average lathe operator, but a great writer of software code is worth ten thousand times the price of an average software writer.”

quote from former chief executive of Deutsche Bank John Cryan: “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.” Any executive worth her paycheck would say the same.

Creative work requires that your mind feel a level of freedom. If part of what you focus on is whether or not your performance will get you that big check, you are not in that open cognitive space where the best ideas and most innovative possibilities reside. You do worse.

In a high-performance environment, paying top of market is most cost-effective in the long run.

The trust we demonstrate in them in turn generates feelings of ownership, commitment, and responsibility.

Daring Greatly: How the Courage to Be Vulnerable Transforms the Way We Live, Love, Parent, and Lead, Brené Brown explains, based on her own qualitative studies, that “we love seeing raw truth and openness in other people, but we are afraid to let them see it in us. . . . Vulnerability is courage in you and inadequacy in me.”

The pratfall effect is the tendency for someone’s appeal to increase or decrease after making a mistake, depending on his or her perceived ability to perform well in general.

DON’T SEEK TO PLEASE YOUR BOSS. SEEK TO DO WHAT IS BEST FOR THE COMPANY.

you have an idea you’re passionate about, do the following: “Farm for dissent,” or “socialize” the idea. For a big idea, test it out. As the informed captain, make your bet. If it succeeds, celebrate. If it fails, sunshine it.

In 800 BC, Greek merchants whose businesses had failed were forced to sit in the marketplace with a basket over their heads. In seventeenth-century France, bankrupt business owners were denounced in the town square and, if they didn’t want to go straight to prison, had to endure the shame of wearing a green bonnet every time they went out in public.

One of the reasons this is so difficult in many companies is because business leaders are continually telling their employees, “We are a family.” But a high-talent-density work environment is not a family.

A job should be something you do for that magical period of time when you are the best person for that job and that job is the best position for you. Once you stop learning or stop excelling, that’s the moment for you to pass that spot onto someone who is better fitted for it and to move on to a better role for you.

A professional sports team is a good metaphor for high talent density because athletes on professional teams: Demand excellence, counting on the manager to make sure every position is filled by the best person at any given time. Train to win, expecting to receive candid and continuous feedback about how to up their game from the coach and from one another. Know effort isn’t enough, recognizing that, if they put in a B performance despite an A for effort, they will be thanked and respectfully swapped out for another player.

WHEN ONE OF YOUR PEOPLE DOES SOMETHING DUMB DON’T BLAME THEM. INSTEAD ASK YOURSELF WHAT CONTEXT YOU 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 TO MAKE GOOD DECISIONS? ARE YOU AND YOUR EMPLOYEES HIGHLY ALIGNED ON VISION AND OBJECTIVES?