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.

What’s worse, company values—as articulated—rarely match the way people behave in reality. The slick slogans on posters or in annual reports often turn out to be empty words.

If you’re not allotted vacation, you don’t fear losing it, and are less likely to take any at all.

The vast majority of firms fail when their industry shifts.

As we hired new employees, a few did stupid stuff, leading to errors that cost the company money. Each time this happened, I put a process in place to prevent that mistake from occurring again.

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.

In order to grow we had to purchase other companies that did have innovative products. That led to more business complexity, which in turn led to more rules and process.

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.

But to develop a foundation that enables this level of freedom you need to first increase two other elements:

Build up talent density.

But if you avoid or move out these people, you don’t need the rules.

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.

Increase ...

“Lead with context, not control,”

Removing controls creates a culture of “Freedom and Responsibility” (a term Netflix employees use so much that they now just say “F&R”), which attracts top talent and makes possible even fewer controls.

Netflix assumes that you have amazing judgment, …. And judgment is the solution for almost every ambiguous problem. Not process. The flip side … is that people are expected to work at a super-high level or be quickly shown the door (with a generous severance package).

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.”

First build up talent density … 1 A Great Workplace Is Stunning Colleagues Then increase candor … 2 Say What You Really Think (with Positive Intent) Now begin removing controls … 3a Remove Vacation Policy 3b Remove Travel and Expense Approvals

Our talent “density” had increased.

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.

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.

If you have adequate performers, it leads many who could be excellent to also perform adequately.

if you have a team consisting entirely of high performers, each pushes the others to achieve more.

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

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

Netflix promotes not just candid feedback but also frequent feedback, which, in my experience, just increases the chances that you will hear something hurtful.

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

It’s stressful and unpleasant to hear what we are doing poorly, but after the initial stress, that feedback really helps.

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,

Don’t just ask for feedback but tell and show your employees it is expected.

A climate of candor doesn’t mean anything goes.

Feedback must be given with positive intent.

Your feedback must focus on what the recipient can do differently.

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 becoming neither defensive nor angry?”

You are required to listen and consider all feedback provided. You are not required to follow it.

feedback can and should be given exactly when and where it will help the most.

A culture of candor does not mean that you can speak your mind without concern for how it will impact others.

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?

“Never give criticism when you’re still angry” and “Use a calm voice when giving corrective feedback”

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.

As the leader, solicit feedback frequently and respond with belonging cues when you receive it.

When the entire community speaks openly about which individual behaviors advance the company, and which don’t, the boss doesn’t have to get so involved in overseeing an employee’s work.

Today, in the information age, what matters is what you achieve, not how many hours you clock, especially for the employees of creative companies like Netflix.

Time off provides mental bandwidth that allows you to think creatively and see your work in a different light.

the freedom signals to employees that we trust them to do the right thing, which in turn encourages them to behave responsibly.

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.”