No Rules Rules: Netflix and the Culture of Reinvention

Author: Reed Hastings and Erin Meyer
Pages: 320

One Line Review

A fascinating read on the culture of one of the most innovative companies of the 21st-century, one based on No Rules.

The One thing: What is the most important point the author makes in the book?

The 4 step innovation cycle at Netflix-

1. Farm for dissent, socialize the idea. (in a culture of candor to enable early decisions)
2. For a big idea, test it out.
3. As the informed captain make your bet.
4. If it succeeds celebrate. If it fails Sunshine it.

These are the elements that fuel this culture of innovation-
➼ Increased talent density As performance is contagious, it is believed that talented people make one another more effective.
➼ Increased candor Netflix believes that candor helps high performers become outstanding employees. Employees are taught to give and receive feedback well anywhere anytime.
➼ Increased Freedom n Responsibility Netflix removed their vacation policy travel and expense approvals, reducing administrative costs, and improving flexibility. To be fast, one needs to be flexible.
➼ Increased transparency From the office spaces to financial statements, from providing feedback to sunshining failures, the Netflix culture is centered around openness.
➼ Increased ownership Dispersed decision-making model is a foundation of the Netflix culture, enabling innovation.
➼ Increased alignment Instead of telling, people what to do provide them with all the context that will allow them to make good decisions.

One big learning

About Sunshining failures. At Netflix, employees are encouraged to pursue innovative ideas. If an idea fails, the employee is asked to sunshine (share learnings from) the failure openly- ensuring everyone wins. The employee wins because people learn they can trust you to tell the truth and to take responsibility for your actions. The audience wins because they learn from the lessons that came out of the project. The company wins because everyone sees clearly that failure was an inherent part of innovation success. Failure is not feared but embraced.

How did the book impact me? My changed perspectives.

‣ Leaders must provide directions at all times.
Give context, not directions. Netflix leaders believe- “When one of your people does something dumb don’t blame them. Instead, ask yourself what context you fail to set. Were you articulate and inspiring enough in expressing your goals and strategies? Have you clearly explained all the assumptions and risks that will help your team to make good decisions?”

The closing passage of the Netflix culture memo reads so-
“If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.“

‣ All great organizations treated teams like families.
At Netflix a team is not treated like a family but a professional sports team bound by strong feelings of commitment, cohesion, and camaraderie but continually making tough decisions to ensure the best player is manning each post.

‣ In the war for talent, office amenities was a differentiator.
For top performers a great workplace isn’t about a lavish office, a beautiful gym or a free Sushi lunch. It is about the joy of being surrounded by people who are both talented and collaborative; people who can help you better your performance. Not free beer or mid-day surfing.

‣ Organizations must tread carefully to avoid mistakes and costly failures.
In creative organizations, the goal is not error prevention but innovation. Netflix has released the controls, flattened hierarchies and decentralized decision making realizing that they are in a creative market and their biggest threat is not, not making a mistake but the lack of innovation rendering them irrelevant in the long run.

‣ It will be difficult to establish accountability in a No- Rules environment
When you tell people you trust them they will show you how trustworthy they are. With increased freedom comes responsibility. The trust offered instills feelings of responsibility in the workforce leading everyone to have a greater sense of ownership.

The book narrates this story of an employee who misused the ‘No Vacation policy’ and was reimbursed $100,000 for personal vacations before he got fired. Even post that episode, Netflix didn’t create a rule because it reaped greater benefits from those who felt trusted.

‣ The larger the organization, the more siloed the secrets as transparency comes at a cost.
Transparency has become the biggest symbol of how much the company trusts its employees to act responsibly. e.g. Netflix is the only public company where financial results are published internally. In what the financial world views as reckless, weeks before it goes public, these numbers are disclosed at QBR meetings with the top hundred managers. To date, it has not been leaked. And if/when it does, they’ve planned to deal with that one case and double down on transparency.

‣ Assuming best intent in a culture of candor is a challenge.
At Netflix, selfless candor is a duty, not a favor. It is treated akin to being disloyal to the company if you someone fails to speak up when they disagree with a colleague or have feedback that could be helpful to the business. Candor is to be served with positive intent and not to attack or injure anyone but to get feelings opinions and feedback out onto the table.

A golden (practical) rule they follow is “Only say about someone what you will say to their face.”

Closing comments

“No Rules Rules” may not be for everybody. One can’t run an ICU or nuclear plant this way. Innovative startups generally start on this fast and flexible route but as the organization grows, processes kick-in. But even at this scale, Netflix continues to manage without these rules. It believes in managing chaos at the edge in order to not stifle innovation. From the Keeper’s test to the 5A Feedback framework, the philosophy behind Netflix’s culture is as imaginative, intriguing and inspiring as Netflix itself.