No Rules Rules - The secret sauce of Netflix
Behind the scenes of the most famous work-culture-related document
Let’s do a short experiment.
Close your eyes, and imagine you are working in your dream company. What does it look like? Who is on your team? What policies are in place? What makes it so special?
For me, it’s easy: I want to work with amazing people and have the freedom to execute a vision I believe in.
If you are like me, there is a big chance you imagined something like this culture deck. It is probably the most famous work-culture-related document in history, viewed more than 5 million (!) times.
So what makes it so special?
In No Rules Rules, Reed Hastings and Erin Meyer share the work and logic behind that culture.
In my opinion, this is the BEST book on workplace culture.
If you are short on time, here’s a summarising illustration:
There are 3 main pillars:
High talent density
Candor
No controls
Today, I’m going to cover 1 and 3. Hastings's approach to candor is also very interesting, but it’s hard to explain in a short post so you’ll have to read the book :)
High Talent Density
"The best thing you can do for employees - a perk better than foosball or free sushi - is hire only 'A' players to work alongside them. Excellent colleagues trump everything else."
Netflix has 4 simple steps to achieve it:
Pay top of market
Measure the right things
CONTINUE paying top of market
No unlimited loyalty
1. Pay top of market
Turns out that having a workplace full of talented people is very easy. You just need shitloads of money 🙃
Seriously though, I think it’s a very smart decision. When you pay people the maximum they could have gotten anywhere else, you reduce a lot of friction for them. They know you appreciate their worth.
Netflix employees are encouraged to go interview at other companies to find their market value, and Netflix will match (and raise) any offer they receive.
In practice, it also improves performance. One very strong engineer can do the job of 3 mediocre ones.
2. Measure the right things
We don’t measure people by how many hours they work or how much they are in the office. We do care about accomplishing great work.
Sustained B-level performance, despite “A for effort”, generates a generous severance package.
Sustained A-level performance, despite minimal effort, is rewarded with more responsibility and great pay.
This is VERY rare. Nowadays the trend is the opposite - CEOs pushing people back to the offices, mainly because it’s easier to ‘track’ the number of hours worked.
Orel here:
I experienced this first-hand, in the last company I worked for. A CEO and a team leader who praised late work and a minimum nine hours work days.
Going out early was a taboo that would get you eye rolled for and if you would repeat it multiple times, you’d get the talk. This created an incredibly toxic environment.
/Fast forward to now, the company is on the brink of bankruptcy, after most of the developers left.
3. CONTINUE paying top of market
This one is even less trivial than the first step. At many firms, when employees are hired, market compensation applies. But when the yearly compensation review time arrives, it no longer applies!
At Neflix, market comp always applies. The three tests for Top of Market for a Person:
What could the person get elsewhere
What would we pay for a replacement?
What would we pay to keep that person?
Top-of-market comp is re-established each year for high-performing employees. At the annual comp review, the manager has to answer the three tests for the personal market for each of their employees.
There an NO centrally administered ‘raise pools’ each year. Instead, each manager aligns their people to the top of market each year.
The market will be different in different areas, and for different people. Some people will move up in the compensation very quickly because their value in the marketplace is moving up quickly, driven by increasing skills and/or great demand for their area. Some people will stay flat because their value in the marketplace has done that.
4. No unlimited loyalty
Loyalty is good. People who have been stars for us, and hit a bad patch, get a near-term pass because we think they are likely to become stars for us again.
We want the same: if Netflix hits a temporary [italics originally in the deck]
bad patch, we want people to stick with us. But unlimited loyalty to a shrinking firm, or to an ineffective employee, is not what we are about.
They openly say it - “Netflix is NOT a family. It’s a sports team”. I love that analogy - you try to find the best person for each position, but sometimes you need to part ways.
To make sure the company consists of only top performers, they encourage the managers to do the famous ‘Keeper Test’:
You should ask yourself frequently, about each of your employees, if they told you tomorrow they will be leaving for a similar job at a different company, how hard will you fight to keep them? If the answer is not ‘very hard!’, you should fire them. In Netflix we have a saying: “adequate performance gets a generous severance package”.
No controls
So you’ve got a team of superstars. What’s next?
Get out of their way!
Here are the Netflix Policies for Expensing, Entertainment, Gifts & Travel:
“Act in Netflix’s best interest”.
Yep, that’s it. They also don’t have a vacation policy and trust the employees to take the time they need.
It’s not only about policies - it’s also about having access to information. Every employee at Netflix knows all the numbers they want to know, there are no hidden agendas and behind-the-back reorganizations and decisions. That’s even though Netflix is publicly traded, and leaks can result in jail time for people.
When you give low-level employees access to information, they can make decisions as well as high-level managers.
Obviously, it’s not as simple as I’m presenting it. It takes a lot of work to implement such policies, which Meyer and Hastings cover in the book.
Final words
Many companies tried to replicate Netflix’s culture deck, and most of them failed. For example ‘Unlimited vacation’ companies are known for the fact their people take less vacation time (which is specifically addressed in the book).
I’ll wrap up with this great quote:
Talented people make magic. Give them the freedom and responsibility to do so.
I haven't read the book, but I've gone through the culture deck a few times. This post is as inspiring as the culture deck. One immediately feels like being an A player and doing one's best. Great post.