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.

Employees are likely to take even less time off if you remove the vacation allotment altogether because of a well-documented human behavior, which psychologists refer to as “loss aversion.” We humans hate to lose what we already have, even more than we like getting something new. Faced with losing something, we will do everything we can to avoid losing it. We take that vacation. If you’re not allotted vacation, you don’t fear losing it, and are less likely to take any at all. The “use it or lose it” rule built into many traditional policies sounds like a limitation, but it actually encourages people to take a break.

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. I was sorry to see them go, but I believed that this was what happens when a company grows up.

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.

Blockbuster made most of its margin from late fees. If your business model depends on inducing feelings of stupidity in your customer base, you can hardly expect to build much loyalty. Was there another model to provide the pleasure of watching movies in your own living room without inflicting the pain of paying a lot when you forgot to return them?

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.

Your number one goal as a leader is to develop a work environment consisting exclusively of stunning colleagues.

Stunning colleagues accomplish significant amounts of important work and are exceptionally creative and passionate.

Jerks, slackers, sweet people with nonstellar performance, or pessimists left on the team will bring dow...

At Netflix, 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.

It’s stressful and unpleasant to hear what we are doing poorly, but after the initial stress, that feedback really helps. Most people intuitively understand that a simple feedback loop can help them get better at their jobs.

A feedback loop is one of the most effective tools for improving performance. We learn faster and accomplish more when we make giving and receiving feedback a continuous part of how we collaborate. Feedback helps us to avoid misunderstandings, creates a climate of co-accountability, and reduces the need for hierarchy and rules.

The higher you get in an organization, the less feedback you receive, and the more likely you are to “come to work naked” or make another error that’s obvious to everyone but you. This is not just dysfunctional but dangerous.

‘Hey, this is my weakness! If I start glancing at my watch while Nitin is giving us a tour of the city, give me a big kick in the shin!’” (Accept or Discard) Most people, like Doug, find it especially difficult to give feedback in real time. Many have been deeply conditioned to wait for the right moment and the right conditions before telling the truth, so that the usefulness of the feedback often all but fades away.

Many may think, “This guy is so brilliant, we can’t afford to lose him.” But it doesn’t matter how brilliant your jerk is, if you keep him on the team you can’t benefit from candor. The cost of jerkiness to effective teamwork is too high. Jerks are likely to rip your organization apart from the inside.

With candor, high performers become outstanding performers. Frequent candid feedback exponentially magnifies the speed and effectiveness of your team or workforce.

Today, in the information age, what matters is what you achieve, not how many hours you clock,

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.

Real life is so much more nuanced than any policy could ever address.

“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.”

Bill Gates

In all creative roles, the best is easily ten times better than average. The best publicity expert can dream up a stunt that attracts millions more customers than the average one.

Managing people well is hard and takes a lot of effort. Managing mediocre-performing employees is harder and more time consuming. By keeping our organization small and our teams lean, each manager has fewer people to manage and can therefore do a better job at it. When those lean teams are exclusively made up of exceptional-performing employees, the managers do better, the employees do better, and the entire team works better—and faster.

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.

People are most creative when they have a big enough salary to remove some of the stress from home. But people are less creative when they don’t know whether or not they’ll get paid extra. Big salaries, not merit bonuses, are good for innovation.

You’ll get more money if you change companies than if you stay put.

In a high-performance environment, paying top of market is most cost-effective in the long run. It is best to have salaries a little higher than necessary, to give a raise before an employee asks for it, to bump up a salary before that employee starts looking for another job, in order to attract and retain the best talent on the market year after year. It costs a lot more to lose people and to recruit replacements than to overpay a little in the first place.

To retain your top employees, it’s always better to give them the raise before they get the offers.

“Before you say, ‘No thanks!’ ask, ‘How much?’”

The most crippling problem in business is sheer ignorance about how business works. What we see is a whole mess of people going to a baseball game and nobody telling them what the rules are. That game is business. People try to steal from first base to second base, but they don’t even know how that fits into the big picture.

Jack Stack

For our employees, transparency has become the biggest symbol of how much we trust them to act responsibly. The trust we demonstrate in them in turn generates feelings of ownership, commitment, and responsibility.

when one employee abuses your trust, deal with the individual case and double your commitment to continue transparency with the others. Do not punish the majority for the poor behavior of a few.

Humility is important in a leader and role model. When you succeed, speak about it softly or let others mention it for you. But when you make a mistake say it clearly and loudly, so that everyone can learn and profit from your errors. In other words, “Whisper wins and shout mistakes.”

a leader who has demonstrated competence and is liked by her team will build trust and prompt risk-taking when she widely sunshines her own mistakes. Her company benefits. The one exception is for a leader considered unproven or untrusted. In these cases you’ll want to build trust in your competency before shouting your mistakes.

To instigate a culture of transparency, consider what symbolic messages you send. Get rid of closed offices, assistants who act as guards, and locked spaces.

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

The more people are given control over their own projects, the more ownership they feel, and the more motivated they are to do their best work. Telling employees what to do is so old-fashioned, it leads to screams of “micromanager!” “dictator!” and “autocrat!”

If you hope for more innovation on your team, teach employees to seek ways to move the business forward, not ways to please their bosses.

The more you actively farm for dissent, and the more you encourage a culture of expressing disagreement openly, the better the decisions that will be made in your company. This is true for any company of any size in any industry.

When you sunshine your failed bets, everyone wins. You win because people learn they can trust you to tell the truth and to take responsibility for your actions. The team wins because it learns from the lessons that came out of the project. And the company wins because everyone sees clearly that failed bets are an inherent part of an innovative success wheel. We shouldn’t be afraid of our failures. We should embrace them.

To achieve the highest level of talent density you have to be prepared to make tough calls. If you’re serious about talent density, you have to get in the habit of doing something a lot harder: firing a good employee when you think you can get a great one.

family is not a good metaphor for a high-talent-density workforce. We wanted employees to feel committed, interconnected, and part of a greater whole. But we didn’t want people to see their jobs as a lifetime arrangement. 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.

IF A PERSON ON YOUR TEAM WERE TO QUIT TOMORROW, WOULD YOU TRY TO CHANGE THEIR MIND? OR WOULD YOU ACCEPT THEIR RESIGNATION, PERHAPS WITH A LITTLE RELIEF? IF THE LATTER, YOU SHOULD GIVE THEM A SEVERANCE PACKAGE NOW, AND LOOK FOR A STAR, SOMEONE YOU WOULD FIGHT TO KEEP.

The best response after something difficult happens is to shine a bright light on the situation so everyone can work through it in the open. When you choose to sunshine exactly what happened, your clarity and openness will wash away the fears of the group.

For a high-performance culture, a professional sports team is a better metaphor than a family. Coach your managers to create strong feelings of commitment, cohesion, and camaraderie on the team, while continually making tough decisions to ensure the best player is manning each post.

Candor is like going to the dentist. Even if you encourage everyone to brush daily, some won’t do it. Those who do may still miss the uncomfortable spots. A thorough session every six to twelve months ensures clean teeth and clear feedback.

Performance reviews are not the best mechanism for a candid work environment, primarily because the feedback usually goes only one way (down) and comes from only one person (the boss).

“Lead with context, not control.”

To encourage original thinking, don’t tell your employees what to do and make them check boxes. Give them the context to dream big, the inspiration to think differently, and the space to make mistakes along the way. In other words, lead with context.