Netflix and The Culture of Reinvention
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Reed Hastings’ Perspective
Reed Hastings co-founded Netflix in 1997. The company develops, licenses, and delivers video entertainment across various genres and languages. By 2022, the platform served more than 200 million people in 190 countries. In 1991, he founded Pure Software, which creates tools for software developers. After a 1995 IPO and several acquisitions, Rational Software purchased Pure in 1997.
Hastings is an active educational philanthropist. He served on the California State Board of Education from 2000 to 2004. He is on the board of several educational organizations, including DreamBox Learning, KIPP, and Pahara. He’s also a board member of Facebook and was on the board of Microsoft from 2007 to 2012.
Erin Meyer’s Perspective
Erin Meyer is a professor at INSEAD, a leading international business school. Her work focuses on how the world’s most successful managers work with cultural differences in a global environment. She has helped executives in five continents to work with cross-cultural complexities. Erin frequently publishes in Harvard Business Review. In 2019, Erin accepted an award from Thinkers50 for the second time. They labeled her one of the fifty most impactful business writers globally. In 2018, she was one of the top 30 most influential HR thinkers of the year in HR magazine.
When it comes to working at Netflix, there are no rules, and that’s what No Rules Rules is about. Reed Hastings, Netflix’s co-founder, outlines how he cultivated a unique work environment. Netflix values both individual and collective initiatives. Working with Erin Meyer, he looks at a unique leadership style that goes against corporate rules.
It’s time for a change in the way we do business. You can rely on your coworkers. Be brutally honest. Moreover, you should never, ever try to win over your boss.
If you’re a Netflix employee, these are among the guidelines to follow. Netflix has evolved from a DVD mail-order startup to a streaming juggernaut. Today, it boasts more than 200 million loyal subscribers.
Today’s main threat is not making mistakes or losing focus. It is struggling to attract top talent and develop new products. Inability to pivot fast when the environment changes is also a factor. New ideas can’t thrive in a business repeatedly bound by the same rules. As painful as it may be to make many small mistakes, they are essential to the innovation process.
When it comes to running a business, Netflix offers a new approach. It is more in sync with today’s ever-changing and fast-paced world. This culture is the pinnacle of innovation, production, and creativity.
StoryShot #1: A Great Workplace Has Stunning Colleagues
“Once you have high talent density in the workplace and have eliminated less-than-great performers, you’re ready to introduce a culture of candor.”— Reed Hastings
Dream Teams Consist of Stunning Colleagues
Your priority should be to build a workplace that consists of stunning colleagues. A stunning colleague is creative, passionate, and productive. Once most of your team are stunning colleagues, you can safely call it a dream team. As well as working effectively, individual members will feel valued as part of a dream team. An excellent workplace is one where the team pursues ambitious common goals.
Developing a dream team is important, but developing these teams can be challenging. The process of creating a dream team starts with effective recruitment. Encourage collaboration, diverse viewpoints, and discourage politics within the workplace. This means Netflix has no rules about cutting the bottom percentage of employees. Staff are not worried about losing their jobs. Instead, they can focus on helping others within their team.
How Netflix Builds Dream Teams
Netflix does not have rules around acceptable topics of conversation with managers. Team members are safe to talk to their managers about any subject. They are safe to make mistakes as long as they search for improvement afterwards. If you have performed well in the past, Netflix gives you greater leeway if your performance is taking a dip.
Successful dream teams are not built on hard work. Instead, success is about being effective. Measure your colleagues on their contributions to the team, rather than how hard they work. When you identify colleagues who are effective, pay them at the top of their personal market. So, instead of giving a standard pay raise, increase it in line with the market. Similarly, never reduce your employees’ pay if you are experiencing financial difficulty.
The Keeper Test
“If you have a team of five stunning employees and two adequate ones, the adequate ones will sap managers’ energy, so they have less time for the top performers, reduce the quality of group discussions, lowering the team’s overall IQ, force others to develop ways to work around them, reducing efficiency, drive staff who seek excellence to quit, and show the team you accept mediocrity, thus multiplying the problem.”— Reed Hastings.
After the dot-com bubble burst, Netflix introduced a test to decide which employees to keep within their team. They had to lay off one-third of their 120-person staff. They encouraged leaders to ask themselves which employees they would fight hardest for. Do not waste money on attempting to improve employee performance. Give this money to the employee in a generous severance payment. Finally, when you fire someone, speak about what happened and answer their questions.
StoryShot #2: Run Your Company Like A Team, Not A Family
“We are family” talk belongs to Sister Sledge, not your company culture. Parents don’t hire their children because they’re the best, but because they’re related. They also don’t fire them.
Instead, consider your company a sports team competing for a title. A top performer should fill every position. As a high-performance team, they form close bonds and care for one another.
Additionally, removing the family dynamic makes it less personal. It makes it more purpose and procedure-oriented. Don’t worry about pleasing your boss; try to do what is best for the business instead.
StoryShot #3: No Approval Processes Required
Netflix uses decentralized decision-making instead of having employees work to please their bosses. The paradigm works in high-density organizations with open and transparent employee relations.
This system facilitated Netflix’s growth and innovation. Here are a few principles in this paradigm:
- Jobs that allow people to make their own decisions are rewarding.
- Project ownership motivates staff to do their best in their respective jobs.
- Make bets that you are confident in placing. Netflix encourages staff to place bets, even if others consider them stupid.
- Allowing great people to establish brilliant ideas will lead to innovation.
- Various people in the organization should make large-scale choices.
- Encourage opposition when generating ideas to get them noticed and tested. Be honest about losing bets.
StoryShot #4: Establish A Tree-Shaped Leadership Structure, Not a Pyramid Hierarchy
A tree-shaped structure is better than a pyramid in promoting innovation and creativity. In this model, the boss is at the root of the company. An informed captain at the upper branches, meanwhile, makes the decisions.
The role of the boss is to create an environment that encourages the team to make sound judgments. They create the context, but they do not direct everything.
The boss also establishes a “North Star” that guides every employee. This is the general direction the company is heading.
StoryShot #5: The Best Way To Inspire New Ideas Is To Give Them Context
“Think outside the box” has become a corporate cliché. But, how do you encourage others to come up with new ideas? Instead of giving specific instructions, provide context to your team.
Don’t tell your staff what to do, and make them tick boxes. Instead, provide your employees with a framework in which they may “dream big.” Allow them to make errors along the way.
As a leader, your role is to ensure the team has all the knowledge to make good decisions. Provide them with all the tools necessary to achieve their goals.
Don’t blame your staff when one of them fails. Instead, ask yourself what context you have been unable to set? Are your objectives and strategy well-expressed and motivating to others? Have you adequately disclosed all assumptions and risks?
StoryShot #6: Say What You Really Think
Feedback is essential for your team to become successful. You must not hold back on information when offering feedback due to fear of conflict. Frequent candid feedback will help your team grow. The most effective approach is to instigate regular feedback sessions. In these sessions, all employees can offer honest feedback on the team’s performance. Coach your employees to give and receive feedback effectively.
A Circle of Feedback
Netflix introduced the concept of an annual circle of feedback. This is not the same as performance reviews, as these sessions do not encourage people to be candid. Performance reviews are for leaders, while a circle of feedback is for all employees. So, sit your teams in a circle and avoid anonymity and numeric ratings. If you are talking about outcomes, do not link them to raises or promotions. Plus, make sure the floor is open to all team members to comment on the team’s current state.
A personal experience of Hastings inspired this circle of feedback. Before joining Netflix, Hastings was still extremely busy and frequently away from home. Subsequently, his relationship with his wife grew distant. In couples’ therapy, Hastings learned the importance of being honest and accepting criticism.
The Four As
Implementing the 4 As will improve the feedback utilized by your team.
- Aim to Assist
A positive purpose should always drive your feedback. You should never comment based on frustration or hate. You can always turn a negative comment into a positive one by being careful with your words.
Your feedback should always have a potential action. Feedback without action is useless.
As well as giving feedback, you must also learn how to accept feedback. Instead of looking for excuses, try to appreciate that feedback is coming from a good place.
- Accept or Discard
Although you should accept positive feedback, you will sometimes receive non-constructive feedback. Discard this as it is not useful.
StoryShot #7: Instill A Culture of Freedom and Responsibility
Businesses are full of ways to control employees. Yet, Netflix has reduced the number of controls and rules as they have grown. One of the best controls you can remove is travel and expense approvals. Design your vacation policy in a way that there’s no need for prior approval. Neither the employee nor their managers should keep track of their vacation days.
When removing travel and expense policies, set the context for spending money upfront. You can then check employee claims afterwards. Suppose people end up overspending; set more context. Encourage your finance department to audit a portion of receipts regularly. This context is necessary for others to understand the results of irresponsible behavior. You will likely encounter expense increases after policy changes. But you will make up for this through the gains associated with freedom.
One Netflix employee in Taiwan claimed more than $100,000 over three years. He did this without his manager catching it. He lost his job after Netflix’s finance department ran an audit of his receipts. Despite this, Netflix still benefited from loosening its expense policies.
“Many employees will respond to their new freedom by spending less than they would in a system with rules. When you tell people you trust them, they’ll show you how trustworthy they are.”— Reed Hastings.
Final Summary and Review of No Rules Rules
Written by the founder of one of the world’s most successful businesses, No Rules Rules takes a fascinating approach to management. If you are looking for a way to shake up your company’s work style, you may find some of these concepts useful. Certainly, building a culture of honest feedback can offer a great way to ensure employees feel valued and heard. It seems to have worked for Netflix.
This book is a worthwhile investment. It’s educational, interesting, and well-written. Unfortunately, certain concepts may not apply beyond the US.
In certain countries, talent culling and radical transparency may be impossible. Moreover, there are labor rules that make it difficult to dismiss employees.
The Asian culture also places a high value on “saving face.” Telling someone they are mistaken or their concept isn’t good enough can be offensive.
We rate this book 4.4/5.
This article was first published in April 2021. It was updated in April 2022.
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