No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

if you want to encourage innovation, you should develop an environment where people feel safe to dream, speak up, and take risks.

no one would openly support a workplace based on secrets and lies. But sometimes it’s better to be diplomatic than to offer opinions bluntly—

If your business model depends on inducing feelings of stupidity in your customer base, you can hardly expect to build much loyalty.

I was convinced that, after I’d let go of their friends and colleagues, those who stayed would think that the company wasn’t loyal to employees. It was bound to make everyone angry. Even worse, the “keepers” would have to shoulder the work of those let go, which seemed certain to lead to bitterness.

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.

a team with one or two merely adequate performers brings down the performance of everyone on the team.

If you have adequate performers, it leads many who could be excellent to also perform adequately. And if you have a team consisting entirely of high performers, each pushes the others to achieve more.

The behavior of the one individual quickly spread to the other group members, even though the groups were together for only forty-five minutes.

If you have a group with a few merely adequate performers, that performance is likely to spread, bringing down the performance of the entire organization.

Our number one goal, moving forward, would be to do everything we could to retain the post-layoff talent density and all the great things that came with it. We would hire the very best employees and pay at the top of the market. We would coach our managers to have the courage and discipline to get rid of any employees who were displaying undesirable behaviors or weren’t performing at exemplary levels. I became laser-focused on making sure Netflix was staffed, from the receptionist to the top executive team, with the highest-performing, most collaborative employees on the market.

I began to see our relationship through my wife’s eyes. She didn’t care about money. She’d met me, in 1986, at a party for returned Peace Corps volunteers and had fallen in love with the guy who’d just spent two years teaching in Swaziland. Now she found herself hitched to a guy obsessed with business success. What was there for her to be excited about?

I saw that openly voicing opinions and feedback, instead of whispering behind one another’s backs, reduced the backstabbing and politics and allowed us to be faster. The more people heard what they could do better, the better everyone got at their jobs, the better we performed as a company.

“Only say about someone what you will say to their face.” I modeled this behavior as best I could, and whenever someone came to me to complain about another employee, I would ask, “What did that person say when you spoke to him about this directly?”

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.

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.

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. But it’s when employees begin providing truthful feedback to their leaders that the big benefits of candor really take off.

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. If an office assistant screws up a coffee order and no one tells him, it’s no big deal. If the chief financial officer screws up a financial statement, and no one dares to challenge it, it sends the company into crisis.

Don’t just ask for feedback but tell and show your employees it is expected. Put feedback as the first or last item on the agenda so that it’s set apart from your operational discussions. When the moment arrives, solicit and encourage the employee to give feedback to you (the boss) and then—if you like—you can reciprocate by giving feedback to them.

“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.”

4A FEEDBACK GUIDELINES

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.

Jerks are likely to rip your organization apart from the inside. And their favorite way to do that is often by stabbing their colleagues in the front and then offering, “I was just being candid.”

“Never give criticism when you’re still angry” and “Use a calm voice when giving corrective feedback”—could have helped too.

what matters is what you achieve, not how many hours you clock,

We are all working online some weekends, responding to emails at odd hours, taking off an afternoon for personal time. We don’t track hours worked per day or week. Why are we tracking days of vacation per year?

If the CEO is taking only two weeks’ vacation, of course his employees feel the unlimited plan doesn’t give them much freedom.

With the absence of a policy, most people look around their department to understand the “soft limits” of what’s acceptable.

If I say, ‘I want you to find a sustainable and healthy work-life balance,’ but I’m in the office twelve hours a day, people will imitate my actions, not follow my words.”

Freedom is not the opposite of accountability, as I’d previously considered. Instead, it is a path toward it.

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.

Before you spend any money imagine that you will be asked to stand up in front of me and your own boss and explain why you chose to purchase that specific flight, hotel, or telephone. If you can explain comfortably why that purchase is in the company’s best interest, then no need to ask, go ahead and buy it. But if you’d feel a little uncomfortable explaining your choice, skip the purchase, check in with your boss, or buy something cheaper.

Usually after just one or two conversations clarifying context your employees will get the hang of how to spend the company’s money wisely and that will pretty much take care of it. When employees realize their managers are keeping an eye on expenses, they aren’t likely to test the limits much.

I told them I would never look at their expense reports, but that finance audits ten percent of all expenses annually. I trust them to behave frugally and carefully with the company’s money and if finance finds any monkey business, that employee will be immediately fired. It’s not one strike and a warning; it’s “abuse the freedom and you’re out”—plus you’ll be used as an example to others for what not to do.

even if your employees spend a little more when you give them freedom, the cost is still less than having a workplace where they can’t fly.

As companies grow from fast and flexible start-ups into mature businesses, they often create entire departments to monitor employee spending, which gives management a sense of control, but slows everything way down.

Once you have a workforce made up nearly exclusively of high performers, you can count on people to behave responsibly. Once you have developed a culture of candor, employees will watch out for one another and ensure their teammates’ actions are in line with the good of the company.

Bill Gates, whom I worked with while on the Microsoft board, purportedly went further. He is often quoted as saying: “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.”

For operational roles, you can pay an average salary and your company will do very well.

Most of our posts rely on the employee’s ability to innovate and execute creatively. In all creative roles, the best is easily ten times better than average.

But for all creative jobs we would pay one incredible employee at the top of her personal market, instead of using that same money to hire a dozen or more adequate performers. This would result in a lean workforce. We’d be relying on one tremendous person to do the work of many. But we’d pay tremendously.

having a lean workforce has side advantages. 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.

High performers naturally want to succeed and will devote all resources toward doing so whether they have a bonus hanging in front of their nose or not.

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.

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.

One study showed people spend twice as much time thinking about their secrets as they do actively concealing them.

It’s not just about offices. Any locked area is symbolic of hidden things, and signifies we don’t trust one another.

It’s up to the leader to live the message of transparency by sharing as much as possible with everybody.

“I see my job as holding an umbrella over my workers to protect them from getting distracted by stuff that doesn’t have anything to do with their work.

I don’t want my employees to feel like they’re working for Netflix; I want them to feel like they are part of Netflix.”

without even realizing it, senior managers stunt the abilities and intelligence of their own workforce by keeping financial and strategic information hidden.