No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

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.

Overall, the Netflix Culture Deck struck me as hypermasculine, excessively confrontational, and downright aggressive—perhaps a reflection of the kind of company you might expect to be constructed by an engineer with a somewhat mechanistic, rationalist view of human nature.

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.

We had become increasingly efficient and decreasingly creative.

But we had selected and conditioned our employees to follow process, not to think freshly or shift fast.

With my next company, Netflix, I hoped to promote flexibility, employee freedom, and innovation, instead of error prevention and rule adherence. At the same time, I understood that as a company grows, if you don’t manage it with policies or control processes, the organization is likely to descend into chaos.

policies and control processes are put in place to deal with employees who exhibit sloppy, unprofessional, or irresponsible behavior.

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.

“Lead with context, not control,” and coaching your employees using such guidelines as, “Don’t seek to please your boss.”

This was a chance to find out how a company with a culture in direct opposition to everything we know about psychology, business, and human behavior can have such remarkable results.

The point is to encourage people to question how the dots are connected. In most organizations, people join the dots the same way that everyone else does and always has done. This preserves the status quo. But one day someone comes along and connects the dots in a different way, which leads to an entirely different understanding of the world.

Despite Reed’s experience at Pure Software, he didn’t exactly set out to build a company with a unique ecosystem. Instead, he sought organizational flexibility.

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

Amazon was having good luck with books. Why not films?

By early 2001, we’d grown to 400,000 subscribers and 120 employees. I tried to avoid the leadership fumbles of my Pure Software days, and although we avoided implementing excessive rules and controls this time, I also couldn’t characterize Netflix as a particularly great place to work. But we were growing, business was good, and work for our employees was OK.

may be partly because we’re so different: I’m a math wonk and a software engineer, she’s an expert in human behavior and a storyteller.

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.

you have a team of five stunning employees and two adequate ones, the adequate ones will

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.

In dozens of trials, conducted over month-long periods, groups with one underperformer did worse than other teams by a whopping 30 to 40 percent.

we realized that at Netflix we also had a handful of people who had created an undesirable work climate. Many weren’t great at their jobs in myriad little ways, which suggested to others that mediocre performance was acceptable, and brought down the performance of everyone in the office.

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 trace this personality trait back to my childhood. When I was a kid, my parents were supportive, but we didn’t talk about emotions in our house. I didn’t want to upset anyone, so I avoided any difficult topics.

But I didn’t know how to talk openly about my fears.

The problem turned around when we started going to a marriage counselor. He got each of us to talk about our resentments. 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.

“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?”

Next time, you might send out an email with themes but not specific questions.

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.

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

At the same time, there’s a wealth of research showing that receiving positive feedback stimulates your brain to release oxytocin, the same feel-good hormone that makes a mother happy when she nurses her baby. It’s no wonder so many people prefer to dish out compliments rather than give honest, constructive feedback.

Yet research shows that most of us do instinctively understand the value of hearing the truth. In a 2014 study, the consulting firm Zenger Folkman

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.

To foster an atmosphere of candor requires getting your employees to abandon years of conditioning and firmly held beliefs such as, “Only give feedback when someone asks you for it” and “Praise in public, criticize in private.”

they don’t want to hurt the recipient’s feelings, yet they want to help that person succeed.

The goal at Netflix is to help each other succeed, even if that means feelings occasionally get hurt. More

important, we’ve found that in the right environment, with the right approach, we can give the feedb...

getting employees to

except for a child with no understanding of hierarchy, power, or consequences.

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.

The first technique our managers use to get their employees to give them honest feedback is regularly putting feedback on the agenda of their one-on-one meetings with their staff.

Your behavior while you’re getting the feedback is a critical factor.

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.”

“is to answer the ancient ever-present question glowing in our brains: Are we safe here?

Monday morning, it’s my first day of this brand-new job, and I’m on hyperalert trying to find out what are the politics of the

could not believe that this low-level guy would confront Ted Sarandos himself in front of a group of people. From my past experience, this was equivalent to committing career suicide. I was literally scandalized. My face was completely flushed. I wanted to hide under my chair.

We hire you for your opinions.

And in return he receives more negative feedback than any other leader in the company. The

But the big risk in fostering a climate of candor is all the ways people may both purposely and accidentally misuse

A climate of candor doesn’t mean anything goes.