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.

Then two things occurred. The first is that we failed to innovate quickly. We had become increasingly efficient and decreasingly creative.

In his famous commencement speech at Stanford University, Steve Jobs said: “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something—your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.” Jobs is not alone. Sir Richard Branson’s mantra is said to be “A-B-C-D,” or “Always be connecting the dots.” And David Brier and Fast Company released a fascinating video that claims the way we connect life’s dots defines how we see reality, and thus how we make decisions and reach conclusions.

Those who were exceptionally creative, did great work, and collaborated well with others went immediately into the “keepers” pile. The difficulty was that there were many borderline cases. Some were great colleagues and friends but did adequate rather than great work. Others worked like crazy but showed uneven judgment and needed a lot of hand-holding. A few were exceptionally gifted and high performing but also complainers or pessimists. Most of them would have to go. It wasn’t going to be easy.

When Patty looks at a team, she sees emotions and subtle interpersonal responses that are invisible to me.

TALENT DENSITY: TALENTED PEOPLE MAKE ONE ANOTHER MORE EFFECTIVE

For top performers, a great workplace isn’t about a lavish office, a beautiful gym, or a free sushi lunch. It’s about the joy of being surrounded by people who are both talented and collaborative. People who can help you be better. When every member is excellent, performance spirals upward as employees learn from and motivate one another.

A fast and innovative workplace is made up of what we call “stunning colleagues”—highly talented people, of diverse backgrounds and perspectives, who are exceptionally creative, accomplish significant amounts of important work, and collaborate effectively. What’s more, none of the other principles can work unless you have ensured this first dot is in place.

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 down the performance of everyone.

Afterward, I tried to take this same commitment to being honest back to the office. I began encouraging everyone to say exactly what they really thought, but with positive intent—not to attack or injure anyone, but to get feelings, opinions, and feedback out onto the table, where they could be dealt with.

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.

But receiving feedback in front of the group sends off danger alarms in the human brain.

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.

A feedback loop is one of the most effective tools for improving performance.

If you would like to develop a culture of candor in your own organization or on your own team, you can take several steps. The first is not the most intuitive. You might think the first step for cultivating candor would be to begin with what’s easiest: having the boss give copious feedback to her staff. I recommend instead focusing first on something much more difficult: getting employees to give candid feedback to the boss. This can be accompanied by boss-to-employee feedback.

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.

You must show the employee that it’s safe to give feedback by responding to all criticism with gratitude and, above all, by providing “belonging cues.” As Daniel Coyle, author of The Culture Code, describes them, such cues are gestures that indicate “your feedback makes you a more important member of this tribe” or “you were candid with me and that in no way puts your job or our relationship in danger; you belong here.”

Coyle explains that the function of a belonging cue “is to answer the ancient ever-present question glowing in our brains: Are we safe here? What’s our future with these people? Are there dangers lurking?”

In his teens, he took a job in a video store and, during long, empty daytime hours, he began ploughing through the nine hundred films it stocked. He developed an encyclopedic knowledge of film and TV—plus a pretty good instinct for what people liked (someone once called him a “human algorithm”). So much for too much TV rotting your brain.

“Brian, the day you find yourself sitting on your feedback because you’re worried you’ll be unpopular is the day you’ll need to leave Netflix. We hire you for your opinions. Every person in that room is responsible for telling me frankly what they think.”

Giving Feedback AIM TO ASSIST: Feedback must be given with positive intent. Giving feedback in order to get frustration off your chest, intentionally hurting the other person, or furthering your political agenda is not tolerated. Clearly explain how a specific behavior change will help the individual or the company, not how it will help you. “The way you pick your teeth in meetings with external partners is irritating” is wrong feedback. Right feedback would be, “If you stop picking your teeth in external partner meetings, the partners are more likely to see you as professional, and we’re more likely to build a strong relationship.” ACTIONABLE: Your feedback must focus on what the recipient can do differently. Wrong feedback to me in Cuba would have been to stop at the comment, “Your presentation is undermining its own messages.” Right feedback was, “The way you ask the audience for input is resulting in only Americans participating.” Even better would have been: “If you can find a way to solicit contributions from other nationalities in the room your presentation will be more powerful.” Receiving Feedback APPRECIATE: Natural human inclination is to provide a defense or excuse when receiving criticism; we all reflexively seek to protect our egos and reputation. When you receive feedback, you need to fight this natural reaction and instead ask yourself, “How can I show appreciation for this feedback by listening carefully, considering the message with an open mind, and beco...

In the example toward the beginning of this chapter, where Doug gave feedback to Jordan about how to adjust his behavior while working in India, we can see the 4As modeled beautifully. Doug saw how Jordan’s transactional approach was sabotaging his own goals. His objective was to help Jordan to improve and to help the organization succeed (Aim to Assist). The feedback he provided was so practical that Jordan claims he now takes a different approach each time he works with India (Actionable). Jordan expressed thanks (Appreciation).

Then Rose’s close colleague Bianca waved her arm from the back of the room, offering a life vest . . . Netflix style: “Rose! This isn’t working! You are losing the room! You sound defensive! You’re talking too fast. You’re not listening to the questions. You’re repeating yourself without addressing the concerns. Take a deep breath. You NEED THE ROOM,” she called out: At that moment I saw myself as the audience was seeing me—breathless and talking more than listening. I took a deep breath. “Thank you, Bianca. You’re right. I’m watching the time. I need everyone to understand the project. I’m here to listen and answer your questions. Let’s go back. Who did I miss?” I consciously changed my energy, and this triggered a change in the room. Voice tones lowered. People started smiling. The aggressiveness in the meeting dissipated. I got the group on board. Bianca’s candor saved me.

Bianca’s intent was only to help Rose succeed (Aim to Assist). She outlined specific actions Rose could take to improve her performance (Actionable). Rose received the feedback with thanks (Appreciation).

Sometimes really talented people have heard for so long how great they are, they begin to feel they really are better than everybody else. They might smirk at ideas they find unintelligent, roll their eyes when people are inarticulate, and insult those they feel are less gifted than they are. In other words, these people are jerks.

Justin Becker, an engineering manager for the Playback API team at Netflix, gave this example in a 2017 presentation titled: “Am I a Brilliant Jerk?” Early in my time at Netflix, an engineer in my group made a big mistake in my area of expertise and sent an email that dodged responsibility and showed no path to fix it. I was upset and called the engineer: my intent was to put him on the right path. I was blunt and criticized his actions. I didn’t enjoy doing so, but I felt I was doing a good thing for the company. A week later, his manager stopped by my desk unexpectedly. He told me that he was aware of my exchange with the engineer and didn’t think I was technically wrong, but did I know that the engineer had been demotivated and unproductive since I talked to him and was it my intent to make his staff unproductive? No, of course not. The manager continued: Do you think you could have told my engineer what you needed to, in a way that left him feeling positive and motivated to fix it? Sure, I probably could do that. Good. Always do that in the future, please. I did. The conversation lasted less than two minutes and was immediately effective. Notice that he did not accuse me of being a jerk. Rather, he asked: (1) “Are you intending to hurt the company?” and (2) “Are you able to act decently?” There’s really only one right answer to those questions. If he had just said, “You are a jerk,” I may have replied, “No, I’m not,” but by asking questions instead, it put the onus on ...

Early in my time at Netflix, an engineer in my group made a big mistake in my area of expertise and sent an email that dodged responsibility and showed no path to fix it. I was upset and called the engineer: my intent was to put him on the right path. I was blunt and criticized his actions. I didn’t enjoy doing so, but I felt I was doing a good thing for the company. A week later, his manager stopped by my desk unexpectedly. He told me that he was aware of my exchange with the engineer and didn’t think I was technically wrong, but did I know that the engineer had been demotivated and unproductive since I talked to him and was it my intent to make his staff unproductive? No, of course not. The manager continued: Do you think you could have told my engineer what you needed to, in a way that left him feeling positive and motivated to fix it? Sure, I probably could do that. Good. Always do that in the future, please. I did. The conversation lasted less than two minutes and was immediately effective. Notice that he did not accuse me of being a jerk. Rather, he asked: (1) “Are you intending to hurt the company?” and (2) “Are you able to act decently?” There’s really only one right answer to those questions. If he had just said, “You are a jerk,” I may have replied, “No, I’m not,” but by asking questions instead, it put the onus on me to think about the answer and triggered a moment of self-reflection. Justin had partly followed the 4A-feedback guidelines. He had intended to help...

With candor, high performers become outstanding performers. Frequent candid feedback exponentially magnifies the speed and effectiveness of your team or workforce. Set the stage for candor by building feedback moments into your regular meetings. Coach your employees to give and receive feedback effectively, following the 4A guidelines. As the leader, solicit feedback frequently and respond with belonging cues when you receive it. Get rid of jerks as you instill a culture of candor.

When it comes to how we judge performance at Netflix, hard work is irrelevant.

you just have to create an environment of trust, and ours is built through three company rules: (1) always act in the best interests of the company, (2) never do anything that makes it harder for others to achieve their goals, (3) do whatever you can to achieve your own goals. Other than that, when it comes to setting holiday time, staff can do whatever they want.

Freedom is not the opposite of accountability, as I’d previously considered. Instead, it is a path toward 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. Barry agreed, but reminded me that we’d need to set crystal-clear context to help employees understand how to spend company money wisely.

fiscally responsible.

If you limit their choices by making them check boxes and ask for permission, you won’t just frustrate your people, you’ll lose out on the speed and flexibility that comes from a low-rule environment. One of my favorite examples is from 2014, when a junior engineer saw a problem that needed to be solved.

The success of Netflix is founded on these types of unlikely stories: small teams consisting exclusively of significantly above-average performers—what Reed refers to as dream teams—working on big hairy problems.

I love this 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.

According to a study by Michael Slepian, a professor of management at Columbia Business School, the average person keeps thirteen secrets, five of which he or she has never shared with anyone else.

You have decided to let go a senior member of the marketing team, a man named Kurt. He is hardworking, kind, and generally effective. But at odd moments he becomes verbally clumsy, putting his foot in his mouth and getting the company in trouble both when addressing employees and speaking externally. The liability has become too great. When you tell him he’s lost his job, he’s devastated. He tells you how attached he is to the company, his employees, and the department. He asks you to tell everyone that he decided to leave on his own accord. How will you communicate about the firing to your staff? Tell the whole truth to those who benefit from knowing it. You send an email to Kurt’s colleagues at Netflix explaining that Kurt, although hardworking, kind, and effective, sometimes becomes verbally clumsy, putting his foot in his mouth and getting the company in trouble. The liability has become so great that you’ve decided to let him go. Tell some of the truth. You inform the team Kurt’s left, but you’re not at liberty to discuss details. He’s gone. What do the reasons matter? Give the guy a break and save his reputation. Announce that Kurt decided to leave on his own accord because he wanted to spend more time with his family. Kurt worked hard for you. You already fired him. You don’t need to humiliate him to boot.

This time, not only did I feel more relief and build trust with my staff, but also people began telling me about all sorts of mistakes they made, mistakes they’d been previously sweeping under the rug.

In 2007, almost a decade later, I joined the Microsoft board. Steve Ballmer, the Microsoft CEO at the time, is this big, boisterous, friendly guy. He would talk very transparently about his mistakes, saying stuff like: “Look here, see how I really screwed this thing up.” This led me to feel connected to him. What an honest thoughtful guy! And I realized: oh, it’s just normal human behavior to feel more trusting of someone who is open about mistakes.

Research backs up Reed’s claims about the positive ramifications of the leader speaking openly about mistakes. In her book, 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.”

On the other hand, there is also research showing that if someone is already viewed as ineffective, they only deepen that opinion by highlighting their own mistakes.

This tendency has a name: the pratfall effect. 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.

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.

When you combine the data with Reed’s advice, this is the takeaway: 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.

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

The legend of Steve Jobs was that his micromanagement made the iPhone a great product.

The popular notion is that the boss knows more because she made it to that higher rung in the ladder. If you value your career and don’t want to be accused of insubordination, listen carefully to what she thinks is the best and follow that course of action.

At Netflix, we strive to develop good decision-making muscles everywhere in our company—and we pride ourselves on how few decisions senior management makes.