Netflix sent out its last red envelope in September 2023, marking an end to 25 years of mailing DVDs. Like me, you’re probably surprised to hear this side of the business still existed. Nowadays, Netflix is synonymous with modern-day entertainment as one of the world’s leading streaming platforms.
You only reach such heady heights with a culture designed for success. And in the book, No Rules Rules: Netflix and the Culture of Reinvention, Netflix co-founder Reed Hastings and author and consultant Erin Meyer detail how the company's emphasis on innovation led to a highly adaptable and revolutionary entertainment business.
Trust your team. Be radically honest. And never, ever try to please your boss. Those are the words straight from the boss, Reed Hastings, the visionary who led Netflix to unimaginable success. At least, it was unimaginable back in 1999 when movies via snail mail were the order of the day.
By putting the building blocks in place and empowering employees, Netflix evolved to become a leader in digital entertainment with more than 232 million subscribers worldwide. Blockbuster, by contrast, has just one shop remaining. Situated in Bend, Oregon, “The Last Blockbuster” now mainly exists as a tourist attraction for those wishing to hark back to the glory days of video rentals.
In a 2023 article, The Guardian detailed Blockbuster’s downfall:
“A world-conquering behemoth in its day, a juggernaut that crushed the necks of smaller independent video stores, Blockbuster took over the world in the 90s and early 2000s. But its glory was short-lived. Netflix came, first in its DVD-by-post guise and then as an unstoppable streamer, and custom disintegrated overnight. If Blockbuster exists in any form now it’s as a punchline, a reference to anything too bloated and arrogant to notice the looming shadow of imminent catastrophe.”
But for now, I’m more interested in how Netflix succeeded where Blockbuster failed. And who better to defer to than the founder himself?
High Talent Density is Better for Everyone
Steve Jobs was famously intolerant of what he deemed ‘B players.’ In his best-selling biography by Walter Isaacson, Jobs recalled:
"It's too easy, as a team grows, to put up with a few B players, and they then attract a few more B players, and soon you will even have some C players… The Macintosh experience taught me that A players like to work only with other A players, which means you can't indulge B players.”
Hastings follows a similar mantra, referring to his ‘A-players’ as ‘stunning colleagues’: “Highly talented people, of diverse backgrounds and perspectives, who are exceptionally creative, accomplish significant amounts of important work and collaborate effectively.”
He explains:
“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.”
Hastings references research by Will Felps, Associate Professor at the School of Management & Governance at University of New South Wales in Australia. 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.
But isn’t building a team of exceptional performers just common sense? Surely every company in the world would rather teams of A players and ‘stunning colleagues’ than B, or – god forbid – C players! But actually achieving this requires tough decision-making. Hastings says:
“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.”
Hastings makes it very clear that Netflix is a team, not a family – a philosophy that mental wellness educator Gloria Chan Packer addressed in her 2022 TED talk:
“’We're like family.’ This is a phrase that's become quite popular in our places of work… It's a phrase that started in the last decade or two to try to elicit feelings of warmth and belonging and really that ‘cool culture’ vibe. The laid-back break rooms with beanbag chairs and the beer on tap and those tight-knit teams that got through everything together like a family. It's a phrase that started with positive intent and has had positive outcomes. However, what's gone far less recognized and discussed is how calling work our family can actually be quite detrimental to our mental and emotional health without our knowing it.”
Calling work our family can be problematic, Packer explains: “Doing so, psychologically infers a really big blur and betrayal in our boundaries. Work and family are different entities with different goals, expectations and responsibilities, and therefore should be separated and boundaried.”
Instead, it’s helpful to consider work and colleagues as being more like a professional sports team:
“It still infers that same warmth and camaraderie, but within the boundaries of a workplace.”
This point is reiterated in No Rules Rules:
“If we are going to be a championship team, then we want the best performer possible in every position…The old notion is that an employee has to do something wrong, or be inadequate, to lose their job. But in a pro, or Olympic, sports team, the players understand the coach's role is to upgrade - if necessary - to move from good to great.”
The sports team analogy is powerful in its transparency about prioritising exceptionally high-performing individuals. You wouldn’t dismiss an underperforming member of your family, but it’s generally accepted – and understood – within a sporting environment.
Speak up, but Don't Be a Jerk
A culture of being open and honest is prevalent throughout Netflix. Instead of talking behind people's backs, team members are encouraged to have open conversations, which minimises backstabbing and general politics – something termed ‘radical candor’.
Hastings says: "The more people heard what they could do better, the better everyone got at their jobs, and the better we performed as a company."
Failing to speak up is regarded as being disloyal to the company. If you disagree with a colleague or have feedback that could be helpful, you can move the business forward. Keeping quiet hurts everyone, and that impacts the business.
That being said, Netflix isn’t above criticism as this July 2021 article from Forbes entitled “Netflix Has A ‘Radical Candor’ Culture, But Fires Three Executives For Criticizing Executives On Slack” suggests:
“Over the weekend, social media brought up the appearance of hypocrisy. Many pointed out that although Netflix calls for radical candor, when it was offered, people were fired. The terminations appear in direct contradiction of the code in which the company operates.”
Despite this, the reasoning behind radical candor does have merit. Research shows that most of us instinctively understand the value of hearing the truth. A 2014 study from consulting firm Zenger Folkman found that a three-to-one margin of people believe corrective feedback does more to improve their performance than positive feedback does.
With such openness making up the crux of Netflix's culture, a "do as I say, not as I do" attitude would quickly fall short. Therefore, it should be no surprise to learn that Reed Hastings received more feedback than most. In fact, he would get more negative feedback than any other leader in the company. Hastings has often spoken about how pleased he's been to receive criticism. Teams are encouraged to give feedback to managers more than the other way around.
But being open and honest doesn't mean anything goes, and there's a fine art to providing feedback that bears results without getting *too* personal. Managers invest significant time teaching their employees the right and wrong way to provide feedback:
First, give feedback with the aim of helping.
Second, your feedback should be actionable.
Third, when receiving feedback, appreciate the effort and bravery of your colleague for speaking up.
Lastly, think carefully about whether or not to accept it.
"If you are promoting a culture of candor on your team”, Hastings says, “you have to get rid of the jerks. 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 candour.”
In other words, weed out the Biff Tannens!
Freedom and Responsibility
Checks and balances slow teams down. At least, they do according to Netflix. Hastings strongly advocates for worker freedom and responsibility, thereby encouraging efficient and better work in a creative environment.
Most of us recognise the need for processes and structure, but there's a way to go about it. Hastings chose to give employees the freedom to exercise their own judgement.
Removing policy also gets rid of bureaucracy and administrative costs. In the aftermath of the pandemic, we've seen many companies adopt a flexible working setup, which requires more trust. Netflix implemented this way of thinking long before COVID-19, and it benefited the company as a result.
Take unlimited vacations. Hastings says: "I thought the sky might fall after we stopped tracking vacations, but nothing much changed except folks seemed to be more satisfied and our more maverick employees, like the one who wanted to work eighty hours three weeks in a row and then go visit the Yanomami tribe in the Brazilian Amazon, were particularly appreciative of the freedom."
Netflix and Hastings found a way to give their high performers more control over their lives. That control made everyone feel freer. What’s more, Netflix believed that because of its high talent density, employees were already conscientious and responsible so there was little risk of the policy backfiring.
Ultimately, it all comes down to five simple words: "Act in Netflix's best interests".
That means owning your decisions, whether buying a replacement TV for the conference room for $2,500 without sign-off or booking a business class flight for a presentation.
At Netflix, if you share all the context of your decision and you've done the groundwork, then you don't need approval – it's up to you.
No Rules, or New Rules?
Reed Hastings takes an interesting approach to fostering a thriving team culture. On the face of it, you might think it's blunt and perhaps too harsh in practice.
But creating groundbreaking businesses needs a razor-sharp approach. Hastings has done just that at Netflix, empowering his team to speak freely (for the most part, anyway!), enjoy genuine autonomy and be the best. It's a concept worth thinking deeply about as start-ups work to navigate the crowded space and become the next innovator in their industry.
I’m all for new rules. As long as they’re not jerks about it!
Comments