No Rules Rules

Reed Hastings

August 15, 2021

But for those of you who are operating in the creative economy, where innovation, speed, and flexibility are the keys to success, consider throwing out the orchestra and focusing instead on making a different kind of music.

August 14, 2021

When you started this book you already knew how to coordinate a group of people through rules and process. Now you know how to do it through freedom and responsibility too.

August 14, 2021

Make ADAPTABILITY the fifth A of your candor model. Discuss openly what candor means in different parts of the world. Work together to discover how both sides can adapt to bring this value to life.

August 14, 2021

The 4As are as follows: Aim to assist Actionable Appreciate Accept or decline

August 14, 2021

As often as they give feedback and as eager as they are to hear it, if you don’t start by saying something positive they think the entire thing was a disaster. As soon as a Dutch person jumps in with the negative first, the American kills the critique by thinking the whole thing has gone to hell.

August 14, 2021

The overarching lesson we’ve learned is that—no matter where you come from—when it comes to working across cultural differences, talk, talk, talk. One of the best ways to get better at providing feedback to an international counterpart is to ask questions and show curiosity about the other person’s culture. If you need to give feedback to a counterpart in another country, ask another trusted colleague from that country first, “Does my message sound aggressive?” “What’s the best approach in your culture?” The more questions we ask and the more curiosity we show, the better we all become at giving and receiving feedback around the world.

August 14, 2021

In English we usually state the subject followed by a verb and an object. We rarely drop the subject, or the sentence doesn’t make sense. In Japanese, however, the syntax is flexible. The subject, verb, and object are all optional. It is possible to have a sentence in Japanese with only a noun. Often the sentence might start with the main topic, followed by some content, and the verb at the end. Sometimes the speaker assumes everyone knows what the subject is, so he drops it. And this aspect of Japanese language lends itself nicely to a conflict-avoidant culture.

August 14, 2021

anyone who has worked internationally will tell you, feedback that’s effective in one country doesn’t necessarily work in another. For instance, the direct corrective feedback given by a German boss might seem unnecessarily harsh in the US, while an American’s tendency to give copious positive feedback might come off as excessive and insincere in Germany.

August 13, 2021

When one of your people does something dumb, don’t blame that person. Instead, ask yourself what context you failed to set. Are you articulate and inspiring enough in expressing your goals and strategy?

August 13, 2021

order to lead with context, you need to have high talent density, your goal needs to be innovation (not error prevention), and you need to be operating in a loosely coupled system.

August 11, 2021

For a high-performance culture, a professional sports team is a better metaphor than a family. Coach your managers to create strong feelings of commitment, cohesion, and camaraderie on the team, while continually making tough decisions to ensure the best player is manning each post.

August 11, 2021

the Keeper Test: “Which of my people, if they told me they were leaving for a similar job at another company, would I fight hard to keep?”

August 10, 2021

IF A PERSON ON YOUR TEAM WERE TO QUIT TOMORROW, WOULD YOU TRY TO CHANGE THEIR MIND? OR WOULD YOU ACCEPT THEIR RESIGNATION, PERHAPS WITH A LITTLE RELIEF? IF THE LATTER, YOU SHOULD GIVE THEM A SEVERANCE PACKAGE NOW, AND LOOK FOR A STAR, SOMEONE YOU WOULD FIGHT TO KEEP.

August 10, 2021

IF A PERSON ON YOUR TEAM WERE TO QUIT TOMORROW, WOULD YOU TRY TO CHANGE THEIR MIND? OR WOULD YOU ACCEPT THEIR RESIGNATION, PERHAPS WITH A LITTLE RELIEF? IF THE LATTER, YOU SHOULD GIVE THEM A SEVERANCE PACKAGE NOW, AND LOOK FOR A STAR, SOMEONE YOU

August 09, 2021

For people who value job security over winning championships, Netflix is not the right choice, and we try to be clear and nonjudgmental about that. But for those who value being on winning teams, our culture provides a great opportunity. Like any team successfully competing at the highest level, we form deep relationships and care about each other.

August 09, 2021

A professional sports team is a good metaphor for high talent density because athletes on professional teams: Demand excellence, counting on the manager to make sure every position is filled by the best person at any given time. Train to win, expecting to receive candid and continuous feedback about how to up their game from the coach and from one another. Know effort isn’t enough, recognizing that, if they put in a B performance despite an A for effort, they will be thanked and respectfully swapped out for another player.

August 09, 2021

When new employees join the company, tell them they have a handful of metaphorical chips that they can make bets with. Some gambles will succeed, and some will fail. A worker’s performance will be judged on the collective outcome of his bets, not on the results from one single instance.

August 06, 2021

a leader who has demonstrated competence and is liked by her team will build trust and prompt risk-taking when she widely sunshines her own mistakes. Her company benefits. The one exception is for a leader considered unproven or untrusted. In these cases you’ll want to build trust in your competency before shouting your mistakes.

August 06, 2021

In other words, “Whisper wins and shout mistakes.”

August 04, 2021

Jack teaches his workforce, from the top engineer to the lowest worker on the shop floor, to read the company’s financial reports. He instructs these people without a high school education on the ins and outs of reading a profit and loss statement—something a lot of highly educated vice presidents can’t do well at many companies. Then he provides weekly operating and financial data to every worker in the company, so they can see how the organization is progressing and how their work contributes to the success. This ignites feelings of passion, responsibility, and ownership in the workforce beyond what he could have hoped for.

August 04, 2021

Divide your workforce into creative and operational employees. Pay the creative workers top of market. This may mean hiring one exceptional individual instead of ten or more adequate people.

August 03, 2021

Whenever I hire a new employee, I tell them to read Rites of Passage at $100,000 to $1 Million+, which back in the eighties and nineties was the handbook for executive recruiters. It tells you how to know your market value and how to talk to recruiters to get that data. I say to all my people, “Understand your market, understand the book, go and meet these recruiters—and I give them a list of names of the recruiters specializing in their jobs. I want all my employees to make an active choice to stay. I don’t want them to stay because they lack options. If you’re good enough to work at Netflix, you’re good enough that other options will be out there. If you feel like you have a choice, you can make a good decision. Working at Netflix should be a choice, not a trap.

August 03, 2021

In a high-performance environment, paying top of market is most cost-effective in the long run. It is best to have salaries a little higher than necessary, to give a raise before an employee asks for it, to bump up a salary before that employee starts looking for another job, in order to attract and retain the best talent on the market year after year. It costs a lot more to lose people and to recruit replacements than to overpay a little in the first place.

August 03, 2021

You’ll get more money if you change companies than if you stay put. In 2018, the average annual pay raise per employee in the US was about 3 percent (5 percent for top performers). For an employee quitting her job and joining a new company, the average raise was between 10 percent and 20 percent. Staying in the same job is bad for your pocketbook.

August 03, 2021

The answer to this question is that when it comes to review time, instead of looking at what that employee is worth on the market, most companies use “raise pools” and “salary bands” to determine raises.

August 03, 2021

I asked Han three questions: Were any of the programmers on his current team good enough to take the job at Apple that Devin had just left? No. Would three of Han’s current employees collectively be able to make the same contribution that Devin could make? No. If a fairy godmother suggested he could silently and without duress swap a few of his current programmers for Devin, would that be good for the company? Yes.

August 03, 2021

I’ve certainly found this to be true at Netflix. People are most creative when they have a big enough salary to remove some of the stress from home. But people are less creative when they don’t know whether or not they’ll get paid extra. Big salaries, not merit bonuses, are good for innovation.

August 03, 2021

I love this quote from former chief executive of Deutsche Bank John Cryan: “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.” Any executive worth her paycheck would say the same.

August 02, 2021

We determined that for any type of operational role, where there was a clear cap on how good the work could be, we would pay middle of market rate. But for all creative jobs we would pay one incredible employee at the top of her personal market, instead of using that same money to hire a dozen or more adequate performers. This would result in a lean workforce. We’d be relying on one tremendous person to do the work of many. But we’d pay tremendously.

August 02, 2021

The rock-star principle is rooted in a famous study that took place in a basement in Santa Monica. At 6:30 a.m. nine trainee programmers were led into a room with dozens of computers. Each of them was handed a manila envelope explaining a series of coding and debugging tasks they would need to complete to their best ability in the next 120 minutes. Millions of keystrokes have since been devoted to discussing the results on the internet. The researchers expected to find that the best of the nine programmers would outperform his average counterpart by a factor of two or three. But of the group of nine, all of whom were at least adequate programmers, the best far outperformed the worst. The best guy was twenty times faster at coding, twenty-five times faster at debugging, and ten times faster at program execution than the programmer with the lowest marks.

August 02, 2021

At most places, there are some great employees and some just okay ones. The okay ones are managed while the stars are relied upon to give everything they can. At Netflix, it’s different. We live in a walled garden of excellence, where everyone is a high performer. You go into these meetings and it’s like the talent and brain power in the room could generate the office electricity. People are challenging one another, building up arguments, and each of them is practically smarter than Stephen Hawking. That’s why we get so much done at such incredible speed here. It’s because of the crazy high talent density.

August 02, 2021

The success of Netflix is founded on these types of unlikely stories: small teams consisting exclusively of significantly above-average performers—what Reed refers to as dream teams—working on big hairy problems.

August 02, 2021

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 will show you how trustworthy they are.

August 02, 2021

Once you have a workforce made up nearly exclusively of high performers, you can count on people to behave responsibly. Once you have developed a culture of candor, employees will watch out for one another and ensure their teammates’ actions are in line with the good of the company. Then you can begin to remove controls and give your staff more freedom. Great places to start are the lifting of your vacation, travel, and expense policies. These elements give people more control over their own lives and convey a loud message that you trust your employees to do what’s right. The trust you offer will in turn instill feelings of responsibility in your workforce, leading everyone in the company to have a greater sense of ownership.

August 02, 2021

told them I would never look at their expense reports, but that finance audits ten percent of all expenses annually. I trust them to behave frugally and carefully with the company’s money and if finance finds any monkey business, that employee will be immediately fired. It’s not one strike and a warning; it’s “abuse the freedom and you’re out”—plus you’ll be used as an example to others for what not to do.

August 02, 2021

So we changed the spending and travel guideline to something even simpler. Today the entirety of the travel and expense policy still consists of these five simple words: ACT IN NETFLIX’S BEST INTEREST

July 31, 2021

TAKEAWAYS FROM CHAPTER 2 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. Coach your employees to give and receive feedback effectively, following the 4A guidelines. As the leader, solicit feedback frequently and respond with belonging cues when you receive it. Get rid of jerks as you instill a culture of candor.

July 31, 2021

The cost of jerkiness to effective teamwork is too high. Jerks are likely to rip your organization apart from the inside. And their favorite way to do that is often by stabbing their colleagues in the front and then offering, “I was just being candid.”

July 31, 2021

Bianca’s intent was only to help Rose succeed (Aim to Assist). She outlined specific actions Rose could take to improve her performance (Actionable). Rose received the feedback with thanks (Appreciation). In this case, she followed the advice Bianca had provided, to the benefit of all (Accept or Discard). If you follow the 4A model, feedback can and should be given exactly when and where it will help the most.

July 30, 2021

ACCEPT OR DISCARD: You will receive lots of feedback from lots of people while at Netflix. You are required to listen and consider all feedback provided. You are not required to follow it.

July 30, 2021

APPRECIATE: Natural human inclination is to provide a defense or excuse when receiving criticism; we all reflexively seek to protect our egos and reputation.

July 30, 2021

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

July 30, 2021

AIM TO ASSIST: Feedback must be given with positive intent.

July 30, 2021

When considering whether to give feedback, people often feel torn between two competing issues: 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 feedback without hurting feelings.

July 30, 2021

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?” This is pretty radical.

July 30, 2021

I began encouraging everyone to say exactly what they really thought, but with positive intent—not to attack or injure anyone, but to get feelings, opinions, and feedback out onto the table, where they could be dealt with. As we began giving increasing amounts of candid feedback to one another, I saw that getting feedback had an added benefit. It pushed the performance in the office to new levels.

July 30, 2021

We would hire the very best employees and pay at the top of the market. We would coach our managers to have the courage and discipline to get rid of any employees who were displaying undesirable behaviors or weren’t performing at exemplary levels. I 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.

July 30, 2021

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. When every member is excellent, performance spirals upward as employees learn from and motivate one another.

July 30, 2021

Every employee has some talent. When we’d been 120 people, we had some employees who were extremely talented and others who were mildly talented. Overall we had a fair amount of talent dispersed across the workforce. After the layoffs, with only the most talented eighty people, we had a smaller amount of talent overall, but the amount of talent per employee was greater. 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.