Culture Eats An Industry: Bingeworthy Drama

How no-rules ruled at Netflix; CEO Reed Hastings connects the dots in his rear-view mirror

Steve Jobs used to throw sub-standard laptops against the wall and Elon Musk has blown up a few rockets on his path to greatness. But after reading “No Rules Rules”, I will remember Reed Hastings as the CEO who tore up the rulebook at Netflix and showed how an anti-corporate culture can create a quarter-trillion dollar company.

Co-written with Insead’s Erin Meyer it tells the story from Blockbuster’s boardroom blunder to developing the “culture deck” or what Cheryl Sandberg called “the most important document ever to come out of The Valley”. Like one of its very own bingeworthy series it is packed with real stories from employees who candidly spill the beans on the low-controls culture of candour, talent density, freedom and responsibility at Netflix.

Like the junior engineer who felt empowered to solve a PR crisis by spending an unapproved $3000 on a 4K Samsung TV. Or the new marketing hire who was astounded when someone openly criticised Reed himself in a meeting and he thanked them. Or the top software developer who thought he messed up his interview when he asked for double what he was currently earning. Netflix offered him another 30% on top of that.

Even co-author Meyer was taken aback when Reed emailed 700 employees with their draft of the book’s first chapter. But from within Netflix such openness is a natural part of their way of working and a lived value that they attribute much of their success to. For example Netflix actively shares all their market sensitive metrics with employees, even during closed periods and before investor reporting.

This eyebrow-raising transparency is just one of many dots that Hastings connects with the success of Netflix. And he admits he wasn’t connecting the dots during the journey – like Steve Jobs says “you can only connect them looking backwards” so this book provides exactly that rear-view mirror of the Netflix dots (9 of them) and the company’s exponential growth.

Firstly; rack and stack with high performers (“talent density” = dot 1). Encourage them to give each other real feedback (“candour” = dot 2) which in turn lifts the whole company beyond the need for policy and process obsession (“remove controls” = dot 3). Dots 4-9 repeat these but at increasing scale, for example while dot 3 gets rid of vacation policy and expense approvals the next level is to remove decision-making approvals and dot 9 is the principle of leading with “context not control”.

And there are practical examples of how feedback and candour helped Netflix become a better product. For example, Hastings was dead set against creating kids content on the platform. But instead of a “yes boss” mantra, his employees disagreed and convinced him to do it. Same with downloads.

Clearly any parent on a long trip with kids in the car can explain why downloadable kids entertainment is obviously such a win (and connects more than just dots in their rear view mirror).

Netflix has been criticised for some of its cultural principles. For example, unlike many corporate cultures, Hastings and his executives don’t see the company as a family, with the associated mutual loyalty and sense of belonging that members would enjoy. Netflix identifies more as a professional sports team with rich rewards for top performers and “a generous severance for adequate performance”. This can create a culture of internal competition which in turn stifles collaboration and innovation as employees hoard information for selfish benefit and promotion.

As expected, the book candidly includes some of this criticism, even from disgruntled ex-employees who felt the up-or out, “rank and yank” culture was ruthless and inhumane. But Hastings argues that the high performance culture lifts all employees and benefitted everyone involved in the company’s exponential growth – something that wouldn’t be possible with a more charitable, job-for-life mindset. 

To stimulate innovation but preserve a professional sports team mindset, Netflix adopted the Innovation Cycle:

If you have an idea you’re passionate about, do the following:

“Farm for dissent,” or “socialize” the idea.
For a big idea, test it out.
As the informed captain, make your bet.
If it succeeds, celebrate. If it fails, sunshine it.

“Sunshine failure” might even earn you a promotion, but Hastings is quick to point out that repeating the same failure certainly won’t. 

In the opening paragraph of the book, Hastings describes Blockbuster CEO John Antioco as a “skilled strategist”. Those skills certainly failed Antioco when he declined Hastings’ offer of $50m to buy Netflix. Twenty years later that investment would have been worth a quarter of a trillion. Instead, Antioco doubled down on an incumbent business model, eventually bankrupting Blockbuster into oblivion.

So yes, Netflix is another example of how culture eats strategy for breakfast, plus an incumbent Goliath for lunch and nearly an entire industry for dinner.

[Image used under creative commons license.]

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