No Rules Rules Co-Author Erin Meyer: Netflix's "keeper test", comparative turnover - Part 2 | E1168

This Week in Startups is brought to you by Outgrow. With Outgrow, any marketer can build calculators, assessments, chatbots, and recommendation tools to double their conversion rates. Go to outgrow.co/twist for a 30-day free trial and a $250 credit. That's outgrow.co/twist. Checkout.com. With checkout.com, your business can innovate, adapt to your markets, and make smarter financial decisions faster. If your business takes payments online, you need checkout.com. Learn more at checkout.com/twist. And OurCrowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing, you can join OurCrowd for free at ourcrowd.com/twist.

The criticism I've heard and the place where people get tripped up is, wait a second, I'm a startup, I'm a small company, I don't have a money printing machine, I don't have tons of venture capital. I can't afford to compete with Netflix, which explicitly is telling people when a recruiter calls, ask them how much the position pays, bring it back to us, and we'll redo your salary at any time.

Right.

This was crazy.

You asked me about that earlier, and we didn't get to it. Yeah.

So, I was gonna bring it up, Erin. As a guest of the program, I think that you could, you know, just—

Actually answer my questions.

Answer my goddamn questions. No, but this is a really— there's just so much with Netflix that's— I know why you wanted to write this book, right? Because you could write any book, but you chose to go into there and write it. You're fascinated by this, right? It was just fascinating.

I just wanted to figure it out, Jason. I just was like— and I gotta tell you, one of my One of the most irritating things for me throughout the first 9 months of interviews was that, okay, so there's Reed, who I spent all these hours with, and Patty McCord, many of you know.

Yeah, she's been on the podcast.

She wrote a good book too. Their famous HR person who was there for a long time. And people, Patty, Reed, everybody else, they kept saying to me, oh yeah, it's just common sense. And I kept thinking, no, it's not common sense. It's not common sense. So, I really wanted to figure it out, how it worked. But then going back to this, going back to this harsh-sounding adequate performance gets a generous severance. Now, whether or not the listeners of your podcast, whether or not they actually want to say that in their company, because I think there's arguments for and against, but I do believe that any responsible manager should be using the keeper test at least to ask themselves questions and think about how to deal with the situation.

Yeah, explain the keeper test. It's really just very applicable. And that's one of the nice things about what you did in the book. I just want to give it another plug. It's also a really good listen, No Rules Rules: Netflix and the Culture of Reinvention. Just go buy it and then come back and listen to this. And if you like it, write a review. If you didn't like it, you can email Erin and give her some notes at her 360 dinner.

Not at the dinner, right?

You're not invited to the dinner.

Only those of you who love the book come to the 360 dinner.

Yeah, if you love the book, we're having a wine dinner. That was the other thing I loved was— I have to do another detour. The book is so good. The culture is so intriguing. My favorite was, they're like, the original— I love how they got to the current— I love language and how they phrase stuff. Like, it's so eloquent to say adequate performance gets a generous severance. It's very eloquent, passive-aggressive, jerky, like, you know, Type A way to say it. That's what I like. But the best one was when they had the, the expense policy. They said, well, do what you would do.

Right.

And then all of a sudden, all these like LA Hollywood guys are like, yo, I would charter a jet and I would order 2 bottles of Screaming Eagle because Tom Cruise is coming to dinner. We gotta spend at least $20 grand on wine. And then somebody's like, what the— who spent— who bought 3 bottles of Screaming Eagle? And then they re— they iterated on that one, if I remember correctly, to say do what's in the best interest of Netflix. What's in Netflix's best interest for the, for the expense policy?

That's right. It used to be, use company's money as if it were your own. Right? And then it was like, oh, wait, don't— no, don't do that.

Don't do that. I'm buying an 8-ball of cocaine and going to the Knicks game and then taking everybody to a strip club.

It's

like, no, no, no, no, no, no, no, no, no, no, no. Don't do that. That's not—

That was the trial and error. Okay. I have to tell the keeper test, Jason. Okay. So the keeper test. Okay. So back to the keeper test. The keeper test is that you, That you imagine. It's great for COVID, right? Because in our COVID times, you can do it all alone by yourself in your bedroom. But this is just a very simple practice where you imagine that each person on your team is coming to you and telling you that they're going to leave the company, right? So, like, I don't know, Tony walks in and he says— I'm done. Right. He says, I'm done. I'm leaving the company. Okay, I have an offer. And then you ask yourself, how am I going to feel? Right? Am I going to be devastated? Am I going to say, oh gosh, Tony, don't leave, right? Am I going to fight to keep Tony? Because if so, well, you know Tony is a keeper, right? You know Tony's the right person for that position. Are you going to feel relieved? Are you going to think, oh gosh, now I don't have to deal with that problem? Or are you going to feel excited thinking about the fact that now you have a little bit of extra budget so you can hire someone else for that? Yeah, a replacement. Right. And then if you're going to feel relieved or excited, that's a clear sign. And the sign is now, the next question should be, have I given this person clear feedback? Have I given them the feedback? Have I coached them so that they can be the best, let's say, athlete? But if I have, if I've coached Tony and I gave Tony feedback and I really see he's not going to be the best person for that job, well, then I really have to think, is it time for a replacement? It's just a very simple test, but I can tell you when everyone in your company is doing that, it automatically just gets the talent density up further, which then allows you to offer more freedom.

It reminds me of— you ever see the movie Gladiator?

I have not seen it, no.

You haven't seen Gladiator?

Oh my God.

It might be a gender thing. Like Gladiator is one of these—

I like kind of cheap flicks.

Yeah. Gladiator is incredibly violent, but it's got these incredible moments of resonance. And one of them is when Marcus Aurelius says to Commodus, your faults as a son are my failures as a father. Um, and, you know, because his son is just basically evil. And if you, uh, uh, and, and, you know, disturbed, as we find out later in the film. Um, but if you did not give proper feedback, you have failed that person. You were the coach. You picked them. You kept them in the job, and you didn't even have the self-awareness or the discipline To know that you would have replaced them in a heartbeat and you would've been happy when they decided to leave. And as one person told me, you know, when I had this challenge with some person at some point, he said, are you rooting for them anymore? And I said, no, I'm not rooting for them. And they're like, why are they at your company? This is when I was like a 25-year-old CEO. And I was like, oh, that's a good point. Yeah, I gotta get this person the fuck outta here. This person's horrible. And I fired the person the next day and I, and that person was relieved. And that's really actually the dysfunction that happens in a lot of things. You, you, you— and they moved from looking at it as a family to looking at it as a team. Explain that philosophical difference for the audience.

Yeah. So that's what I was thinking as you were talking. So of course, the most common analogy for a team, for a company, for an organization is the idea of a family. And, you know, okay, we are a family. We all are. We're all trying to be a family, to create a family atmosphere. But the thing about families is that when, you know, in families we put up with a lot, right? We put up with a lot. We have to put up with a lot. But I like the idea. I think it's actually quite helpful, this idea of thinking about your company as a team, not a family. And not just like any old team, but I mean, Reed lately, and maybe now as Netflix has gotten more successful, he's been talking about it as an Olympic team. But if you think about that idea, like if you're the coach of a professional football team or soccer team, your job as the coach is to get the very best person in every position, right? And then you're going to try to coach the hell out of them and get a lot of good feedback going and try to get a lot of camaraderie on the team. But when that person shows that they can't perform, you're not going to keep them on the team just to say, well, gosh, we all have some low performers. You're going to say, okay, you know what?

Cousin Billy's got to stay. Cousin Billy's got to go.

That's right. And it's not even that. It's not just poor performers. You're not even going to put up with adequate performance. If you can find someone better, you're going to say, thank you so much for everything you gave to this team this year. And now I'm moving, whatever, Samantha into this role. So, I think if people recognize when they join the company that they're not joining for a decade, or maybe even for 5 years, they're just going to be in that team for the period of time that they're the best person for the spot. Yes. Right.

And it's important for leaders to know that a lot of times the employee, the team member, is not looking for this to be their family. They got a family already, already in most cases. That's enough. You know, they might have an extended family, might have multiple extended families. They don't need this drama at work. The right players want to be on a team, they want to win, and they want to do it for some period of their life. What is the tenure like at a Netflix? Because it does seem like they have people who are lifers over there. Um, I mean, you do have the issue of that company has succeeded so much that the equity will cause people to call in rich. But aside from people calling in rich and just, you know, having existential crises where they're just like, why would I go to work if I have this much tens of millions of dollars in my bank account? Um, do people not leave and do people want to stay forever? Is that what you learned? Like, are they lifers there?

Right. Well, so it's actually interesting. I've realized, Jason, that here's another question you asked me earlier and I never answered. Okay, so I'll come back to

that. That's the sign, Erin, of a good interview. I don't mean to be defensive in my 360 dinner, but that's the sign of a vibrant conversation, is that there's so much energy that the questions pile up. And that means that you and the interviewee are having a flow experience. We're having a flow experience here. So many questions bubbling up.

Okay, thank you, because I don't want to be irresponsible, Jason. Okay, so thank you. But yes, the question is about— oh, chat, yeah. How many people leave the organization? OK, so we think— you would think, right, if everyone's asking the keeper test, that there would be a high turnover rate at Netflix. Sure. A lot of people getting kicked out the door. And of course, Netflix doesn't pay much attention to this at all. But what I saw when I looked into it was that their turnover rate is just a couple of percentage points higher than the industry average, and the voluntary turnover rate is several points lower. So, people choose to leave the company less frequently. And then the involuntary turnover rate, people getting fired, is slightly higher than in other companies. So, that's where you get that kind of increased talent density that then leads to the freedom. But overall, it's not much different than you would find in another company in the same industry.

Yeah. See, that was very interesting to me, I think. And it's very telling is that they are cutthroat. Said it in plain English here. They're cutthroat about cutting low performers, but they don't have people leaving on their own. Medium performers. What's that? Medium performers. I'm sorry, performers. Adequate performers.

Reid beat that into me because he kept— every time I would say poor, he would say everyone fires poor performers. There's no innovation there.

Yes. No points for that. You don't get credit for firing a dipshit. You get You get credit for firing somebody doing a good job. That's right. I mean, in his mind— and that's why people get confused about the culture, because you would— we've been trained to think you did your job, you keep your job. That's equitable, but that's not what high-performing teams do. And this other idea of loyalty, if you can replace a person in that position with a better player, you are cutthroat about it. I don't know if you follow the NBA, but if you can get LeBron to come to your team, whoever's you know, playing his position before that is out, period. How do you know when a product is just killer? How about when the market leaders start adopting it? When it comes to interactive content marketing, Outgrow.co is used by Adobe and Salesforce to engage and educate their audiences while improving their lead conversion rates. Outgrow's wide range of intuitive no-code tools such as calculators, chat Chatbots, assessments, and quizzes help you drive engagement and boost conversions. So you ever know when you come to a website and they're, they're trying to get you as a customer and they give you a nice quiz and then that allows you to talk to somebody who is, you know, going to help you close that sale like an associate? Well, that's what these funnels are about. And if you use these no-code tool things like a calculator, you could do a mortgage calculator, you could do a calculator of savings accounts. You get the idea. Well, these pre-optimized templates make it easy for the modern marketer to quickly create interactive content, as opposed to going to your dev team and saying, I need this, and they never get to it because you've got other things to work on. When you think Outgrow, you should think growth. It's that simple. Outgrow equals growth. Our associate Preston loves Outgrow and built this twist podcast recommendation tool for fun. If you head over to thisweekinstartups.com/getstarted, you can use the tool for yourself and get a personalized recommendation on what episodes to check out based on your preferences. Really cool idea, right? And we would have never hired a developer to do that. But since outgrow.co/twist is giving a 30-day free trial and a $250 credit, it was a no-brainer for us. Go ahead and go to outgrow.co/twist and get that $250 credit. You get it, you put it in your account, and you're all set. So how do they account for loyalty in an organization where You're basically not loyal to people who do their job.

Well, I think that this is actually—

And at a good job.

This is actually one of the more interesting things that someone said to me during an interview, and it was after the— or during a discussion, and it was after the book was already finished. So it's not in the book, but I had one of the senior leaders or high-level managers say to me that she thought that the entire reason that Netflix was— she said, I don't think it has to do with all of that stuff you talked about. She said, I think the entire reason we are so successful at Netflix is because we say to potential job candidates, at Netflix, adequate performance gets a generous severance. So people know, okay, people who choose to work here are risk-takers, right? The people who opt in are comfortable taking a big amount of career risk. And people who don't want that methodology, they go work somewhere else. So what we find then at Netflix is that we've got an entire company of employees who are quite comfortable taking risk and, you know, thoughtful risk, and that that then has led to this kind of like enormous speed and development. So I don't know, I thought that was an interesting thought.

Yeah, I mean, it's— it sounds cutthroat, but when you put the generous severance on it, you've given an exit ramp. I find it's very important to have that exit ramp and that kindness to you know, soften the blow of, you know, hey, adequate performance, you're out. Um, or most people would say doing your job, right? That is very counter that you got a generous severance, you got asked to leave for that. And as one venture capital firm, very famous one, told me when I said like, what happened to these 2 partners? And it was like, they weren't invited into the next fund. And I thought that was like, oh, you fired them. They're like, well, they didn't continue on with us because they weren't invited into the next fund. And I was like, okay, that's why you're the number one venture capital firm in the world with like the greatest hits.

But it's such a great way to think about it, right? Like at the end of every year, you go back and you look at every employee and you think, okay, would I rehire this person or not? Right? And if everyone knows that's the deal, you know, I don't, I don't think it's unfair. I actually think it's, it's quite, it's quite exciting. Although of course there are some—

Yeah, you're in France, you're in a socialist country. Uh, and you teach in France business students, correct?

I do, yes.

How does this philosophy vibe with socialism? And I don't mean that in like a communist, you know, socialism as a road to communism, but in a socialist-leaning country, uh, in our continent where you are, you know, the, the idea of firing somebody for adequate performance, you would get put— you would, you would, uh, you have to go to Uh, a labor board in order to fire somebody, correct? Like, you can't just willy-nilly fire. It's not an at-will place. If people do an adequate job, they're supposed to get like some raise every year.

Yeah.

How does Netflix operate in France?

Yeah, well, that was one of the things I really didn't understand. My husband, who's French, I remember that he was like, well, there's no way they can do that in, in France. Um, and when I started working with them, they weren't in France yet, right? They were just starting to get— it was in 2015. They were just starting to get ready for this big international expansion. Um, but what I found, and I You know, I actually, I don't know the details about it, but what I've learned from reading and the human resource people at Netflix is that adequate performance in the Netherlands or in France gets a more generous severance.

Much more, like a 6-month or a 12-month more.

So what I found was that actually, you know, in Europe where it is much, let's say, harder to fire people, if you offer enough money, You can, you can ask that person to leave, right?

Got it.

Um, and, you know, there was actually a case with— in Amsterdam where there was one, one Dutch person who was super angry about being asked to leave and, uh, wanted to take Netflix to court for, for the generous severance. And the, the lawyer said, you know, they gave you this big chunk of money. There's nothing I can do, right? There's no— there's—

Yeah, how much more are we gonna fight for here? If they gave you the year, like, what are we gonna do, get you 18 months? Let me ask you a candid question then. Can a company, a world-changing company, be built in France or Norway or, you know, a socialist country, given that you cannot deploy a team mentality? You have to deploy the family or socialist mentality when it comes to managing elite talent.

Well, I do think— okay, I do think in many ways that the principles of Netflix are more difficult to roll out in here in Europe. And I do see, like yesterday I was doing a session with, uh, with CEOs in the Czech Republic. And I clearly saw that they were like, whoa, what are you asking us to do here? Yeah. But I still think that these principles are, I mean, are super important really in any part of the world. Just simply, okay, if I want more innovation, then I have to take a couple of steps towards increasing talent density, whatever that might be. And then I have to take a couple of steps towards increasing candor, whatever that might be. And then I need to think about giving my employees more freedom. And as I do that, you know, the, the, um, the, the soil will become more fertile and innovation will grow.

Um, and I, you know, applicable, but I mean, sort of to my, to my question, I'm wondering, you know, when you look at an ecosystem for excellence, America seems to still have, even through some very rough times of, of late, um, we still seem to be exceptional at creating Global companies that touch almost everybody on the planet where we're allowed to go. Now, some folks aren't— we're not allowed in certain countries, uh, you know, that are communist countries. But, uh, we do have Google or Netflix or Tesla or, you know, Uber or Airbnb spread around the world. And it has to have something to do with the fact that we have at-will employment and we can spin up a unit, and if it doesn't work, fire everybody, start over, and those people have no recourse. But in other countries, if you spin up a unit for 50 people in the Netherlands, you can't spin it back down. It's a death knell for the company.

That's right.

And then you look at China, and Jack Ma disappeared for six weeks, and he just—I don't know if you saw on Twitter—he showed back up. Did you see the video?

No, I didn't.

I mean, the video is—he looks like he's being held by Al Qaeda. I mean, he's like reading from a script, and he looks like he's a little shaken, and he's like. It looks like he just got out of reeducation. They basically are sending a signal that if you're playing by their rules, talk about no rules, you're working for the government essentially. They took his IPO off the table. What does this mean for global innovation since you're an American living in Paris?

Yeah. Of course, Jack Ma is a very specific case in China, but I've been doing some work with Alibaba University.

Sure.

So I did that just in November and December. And those are all Chinese entrepreneurs. And I work with them mostly through translation. And I will tell you, they love the no rules rules philosophies. And really focusing— those young entrepreneurs really focusing on creating environments that are very un-Chinese. But they definitely find the people in China who love working that way. So I would say—

That's encouraging.

You're more of an anomaly, but definitely those things are, yeah, coming up all over the world. But, you know, I think you did also ask me that question earlier. I didn't answer it. It's okay.

This is what they call a really great, vibrant discussion. It doesn't— we don't have to cover everything. We leave them wanting more, Erin.

Okay.

They're gonna want a part 2 from us.

That's the beauty. 'Cause you asked me earlier, I'm remembering, about candor. Well, that's your

specialty, is it not? You understand in this sort of matrix, in Japan, you don't ask for the deal in the first meeting and you never ask directly, like, do we have a deal? There would be some other process, right?

Right. That's how I started working with Reed because he read my first book, The Culture Map. He was getting ready for this international expansion. He had his leadership team. team read it. I came and spoke to Netflix about it. And I remember after that first speech, he and I had lunch. And he said to me, Erin, I just want to know candidly, do you think that the Netflix culture, as you understand it now, do you think that that can work in other countries? And I remember my answer just flew out of me. I was like, well, that candor, Reed, you can't do that candor Mm-hmm. You can't do that in Singapore. It's going to ruin the relationships. It's going to kill the good environment at work. And I remember, you know, he thought— he listened carefully to me, and then he said, well, you know, I hear that, but that candor is so fundamental to our success at Netflix that we can't operate without it. Do you have anything else for me? Yes. That's exactly—

That's a great answer, Erin. I respect it. Now give me the answer I would like to hear.

So then we talked about some other things. I mean, I talked about the fact that nothing to do with what we've been talking about, but I talked about the fact that they were so task-oriented at Netflix, these 30-minute meetings, not much relationship building. And, you know, that was really going to need to change. And he was like, okay, well, that I can do because although we are very task-oriented, And that's not a fundamental part of our success. And then he went on this big relationship orientation tirade after that. But the candor, I learned something. So, I was wrong. What I learned as I was doing interviews in Tokyo, at Netflix Tokyo, and Singapore, and São Paulo, was that candor, the behaviors of candor that were coming out of California, could not be applied directly. They had to be

adapted.

They had to be adapted and they had to be homegrown. So, what I mean by that was like the idea that you would like stop someone in the hall after a meeting and give them feedback, which happens in Silicon Valley in LA. I mean, that's not happening very much in Tokyo. And if it does happen, it's likely to really hurt the relationship. But to my surprise, those 360-degree feedback dinners, they It worked really well in Japan, which, which stunned me.

Do you have a business that accepts purchases or orders online? I bet you do. You're listening to This Week in Startups. And if so, have you ever had a digital transaction not go through? Of course, the answer is yes. So that's called a false decline in the industry. That's an industry term, a false decline. And this is what happens when a An online purchase is declined, but it should have been accepted. How frustrating is that? You're right there. You have the ability. It's a layup. You're going to put the ball in the basket. But no, you missed the shot. And this is often the result of technical, financial, or fraud scoring reasons. Well, last year, wait for this, US, UK, French, and German false declines were over $20 billion with a B dollars, according to our friends at Checkout checkout.com. Go visit checkout.com and you will see how you can resolve this issue. It's a total no-brainer. Here's my associate Presh, uh, doing a free test account at checkout.com/twist. So if you go to checkout.com/twist, they're going to give you a free account and you get to see Checkout's amazing dashboard. And see here how easy it is to deploy a checkout.com payment gateway onto, let's say, a Squarespace website, a beautiful Squarespace website. There it is. Boom! Checkout is crucial for growing companies. They're going to allow you to get that granular understanding of how cash flows in and out of your business, and they're trusted by brands like Samsung and Adidas and many more. Go ahead and check out checkout.com/twist. No, it's not stunning because there is— I, I, my, you know, very cursory knowledge of Japanese culture, having been there five or six times, is it's very formal and buttoned up like you're saying. But once that whistle blows and it's the day's over, going out with your boss and getting plastered and singing karaoke and literally coming in the next day because I've done this where I've gotten so polluted on scotch drinking with Japanese business executives, and then the next day everybody's like oh they just like rub their hair and they're like oh yeah yesterday it was like but then you're back to work. And nobody's giving negative feedback. But the night before, people are puking in garbage cans and just laid out in a karaoke room, just bombed out of their skulls with their bosses.

That's right.

So they do have something about nighttime.

That's right. And there's a word for that that they use in Japan, which is numinication. Numinication. Yeah. Numi, which means drinking. Communication, right? Which is to communicate.

Like drinking vacation or communication?

Communication. So the more we drink, the better we communicate. But let me hope that that's not what's happening in the 360 dinners. I don't think so.

I think that's probably exactly what's happening. But I mean, the other thing is, for, for Netflix, they don't need the entire country to buy into their system and their culture. They need only the elite. This is what's very interesting And makes me very encouraged about your work with these Chinese entrepreneurs. If the whole country feels like, oh, tall poppy syndrome and don't get out of line, but that's fine if, you know, 999 million out of a billion think that way. We only need that million and that little creative class, that little entrepreneurial class, to actually want to embrace this philosophy, correct?

Well, yeah, yes and no. I mean, that's really what Reid kept saying. He kept saying that to me, right? He kept saying to me, Erin, I'll find the Even the Japanese who like candor. Yeah.

That's what I was thinking.

But, you know, I actually, I would say even the Japanese who were more comfortable with candor, they were clearly not liking candor the way they were liking it in California. But what was so interesting about those 360 feedback meals was that I think actually a couple of them were being done in the afternoon. But what was interesting was that people understood what the expectation was. They had time to prepare. They knew that they were supposed to provide feedback that would be helpful to each person at the team. And Japanese culture is really about group orientation, helping the team, and preparing.

Loyalty, right?

Right. So when they came in, they were better at that feedback than the Americans were.

Fascinating.

And so I actually really, really learned this lesson, and I've now been kind of talking about that with a lot of other companies, which is that you can take your values and you can spread them around the world. And if your value is candor, okay, take candor and spread it around the world, but don't think you can take the behaviors from your own country and transplant them. You have to let that culture say, okay, well, what does candor look like here? Right? And then come up with the behaviors that go with it. And that seems to actually be working quite well.

Was there something that you found that was a leak in the game? Because so much of it is so inspiring, so refined, so tight. But was there anything you said, you know what, Reid, I disagree 100%, you're wrong, and that he changed his behavior eventually? Or was it just, hey, they've really dialed this in and figured it out?

Well, I mean, so they clearly had some bets that failed. They clearly had— they clearly They clearly had some experiments that failed. And Reed does think about his culture, the corporate culture, as an experiment. So I think that's actually interesting for the entrepreneurs on the podcast to just think about, okay, of course you have to be there figuring out what's working and not working and trying things out. But one of the things that they tried at Netflix was open salaries. And Reed believed very strongly that he wanted to have salary transparency throughout the organization. Right. So, everybody at every level would know what everybody else was making. And I actually love his reasoning for that. So, his reasoning was that every manager should be able to explain clearly and transparently why they pay each person what they do. And if they can't do that, well, then there's something wrong here.

I agree with that. Yeah.

And he also— yeah, go ahead, please.

No, I was going to say, but he didn't originally believe in that, or he did?

No, he did. I mean, and he still does. Okay. It was his big, like, I really want to make this happen. And there were also these, of course, wonderful reasons for doing it, like getting rid of gender disparity. Sure. So, if you're paying women less than men on your team, if you make salaries transparent, well, that's going to go away, right?

Yeah. Well, people will take out the spreadsheet and they will do the math for you. And they will show you exactly where your bias is.

That's right. So Reed started by first rolling out that salary transparency to his vice presidents. And it was like that, I don't know, for a year or 6 months or something like that. And then he rolled it down to the next level. So now the top 10% of the employees had salary transparency. And it was a big mess. Wow. So Reed kept thinking, it's just a period of adjustment. It'll just adjust. We'll just get used to it, right? He said, people are not used to it, so they're kind of like flipping out, but we'll get used to it. But I interviewed people about it. I was fascinated. I actually wrote a chapter for the book, but I ended up taking it out because it was kind of like a transgression. But it was, you know, people just like, oh, every time I look at any of my colleagues, I see their salary flashing on their head.

Wow.

Or, I can't feel good about working here anymore now that I see how much money people are paid in that department. So

it went from being like fairness to just creating anxiety or angst, and people were just jealous or whatever. I mean, it is people's papers. People consider very private what they get paid. And so I could see people who are high performers being like, I really don't want people to know my salary.

And people didn't want— they didn't want to know other salaries. People would say things to me like, I felt really I was feeling good about my job and about what I was making until I had that spreadsheet open to me. Then I got that link and I spent all night poring through it. When I got through it, I was so mad. I talked to my boss about it and I'm still mad. Now I don't want to work here anymore.

It is challenging, I think, if you look at any organization, the top sales execs, if the organization has a great year, are going to make 2x what their managers are going to make, or the management team is going to make. Now, the management team might have equity that's worth a lot more ultimately, but I mean, my entire life I've looked at like the people who are in the sales department like, wow, they're making 2x the, you know, the people in operations. Is that fair or not? It's like, well, that's what the market pays. The same thing with developers. You, you, when you are in tech, you very quickly start to realize like, wow, the people in operations who are working just as hard, or sometimes more, or whatever, are being dwarfed in their compensation by the developers, but it's, it's a free market. So you just say to people, do you want to be a developer and write code? And they're like, no, I would rather make $50,000 less a year and not have to write code all day. So people will opt into it, but it does create that. Let me ask you a question about Modern as we wrap here. And this is—

Wait, but sorry, I have to tell the end of the story, which is the end of the story is that he brought it to a vote, right? So Reid wanted, Reid wanted to pass it down to the whole company. He was dead fast on passing it down to the whole company, but he brought it to a vote at their quarterly leadership meeting and the top 800 voted, it was something like over 75%, maybe more than that, no, we don't roll it down. So Reid gave up. Yeah, in any case.

That's interesting. Yeah, I mean, I think it's good for him to win the war and not like— you don't have to win every battle to win the culture war, right? You can let certain things go. He can readdress it. Do you ever wish that you invested in some of the best-performing IPOs of 2019 and 2020? I bet you do. Well, OurCrowd investors did invest in many of those awesome IPOs. With OurCrowd, accredited investors can invest directly and easily in startups early, before they IPO or before they get bought. Those are the 2 likely scenarios if you're going to have an exit. Well, OurCrowd investors have benefited from companies IPOing like Beyond Meat, what an amazing company. And some of the companies have also been acquired by the likes of Intel, Nike, Microsoft, and Oracle, right? There's 2 ways to have an exit, generally speaking. One is an IPO and one is getting bought. And OurCrowd's professional research team identifies these promising companies, and they also look for funds across a range of sectors, stages, and locations. They've already invested hundreds of millions of dollars in over 200 companies with dozens of exits. So today you can join OurCrowd's investment in Nanolock Security, a company offering IoT cyber protection. This includes billions of low-end devices that other technologies simply can't protect. Nanolock is the only device-level protection that has both near-zero power requirements and is operating system agnostic. You can get in early on Nanolock and other unique opportunities at ourcrowd.com. That's ourcrowd.com/twist. It's totally free. O-U-R-C-R-O-W-D.com/twist. Let me ask you a challenging question because I had this happen and I talked to my mom about it and I talked to my wife about it. Uh, let's say you have 3 people who are different genders. One person happens to have 10 years experience more than the others, but they're all doing the same job, but one person has 10 years more experience. Should those 3 people be paid the same amount because they're doing the same work? Or should the person with 10 years experience, because they've put 10 more years and they have a little more wisdom, maybe, uh, should they get that— let's just pick a number— 20% more?

Well, I mean, the idea at Netflix would be that if you've worked 10 years longer but you're not adding, you know, 10 years more value, then you get paid for the value that you're being delivered, right? And that, you know, that brings us back to the keeper test. Otherwise, we might end up in a situation where we're paying somebody, you know, so much because they have so much experience, but we actually think that for that same amount of money, we could get a younger person who would add more value, right? Um, but it's not clear-cut, right? Of course. And of course, I don't know what your mom said.

My mom— well, it was interesting because my mom's a nurse, and so I framed it, you know, obviously the framing of this is important. Uh, the framing came from the fact that in this example, it happened to be a male who had the 10 years more experience and a female who had 10 years less. And I had paid the person more who had the 10 years experience. And then I was sitting there going, you know, do I have a blind spot here? I'm paying the male who's doing the same job as the female some percentage more, but that was because they had 10 more years experience and they had had other positions that were leadership positions. And so I went to my mom, I said, Mom, and my wife, I had a conversation with them, like, tell me if a— and my mom's a nurse. I said, if a nurse had 10 years experience, But they were both emergency room nurses, which is what my mom did. She ran an ICU and then before that ran the emergency room. She's a nurse practitioner. I said, putting aside degrees, which you could make a judgment based on the degree and the investment in that and whatever, and the certification, putting certifications aside, just 10 years more experience in the emergency room versus, you know, one person has 10, one person has 20, but they're doing the same thing, any difference in salary? And my mom's immediate reaction was yes. And then she kind of backtracked a little bit and was like, Well, maybe if they're doing the same exact— it was, it was basically we all struggled with it is where we came out. We all struggled with it because you want to in one way have it be fair to the per— to both parties. And it seems unfair to the person who put 10 years in and has more wisdom, maybe at some point might have a little bit more scar tissue, so to speak, to make a better decision, or more reps. But they are doing the same work, so that seems unfair to the person. I, I don't have an answer for it. That's why I'm asking you.

Yeah. Well, I don't know. I mean, what I would have seen at Netflix with that would be that people are looking at that every year, as we talked about. Every year they look at the salaries of the people on their team, and if they feel like one of the people on their team could make more money at another company, then they up their salary to what they think they could make at another company. Right? So that's the only thing that they're looking at. How much is this person worth on the market? How much could they make at another company? That's where talking to the recruiters comes in. And then make sure that I'm paying them whatever necessary in order to keep them on the team. Now, of course, there are other complexities. Oh my gosh, right? I mean, I'll let you wrestle with that.

Yeah, it's a little bit of a difficult one. And we all want equity. So I think having a transparent discussion about it is actually a good way to do it, which is what I ultimately did. did. And ultimately, you know, I basically decided to freeze the salary of that person while raising the other people's salaries, and that other person wound up not being with the organization. So problem solved. But the free market does determine some things, right? Like, listen, I could talk to you for hours, and I have. We're an hour or two here, so I am going to— Erin, thank you for your time. I know it's late in Paris. Everything going okay there in terms of the Oh yeah, no, we're

okay. I mean, it's not like the UK. So the big huge thing is that the schools have not closed in this school year. So I have these 2 boys, Ethan and Logan, they're 15 and 11, and we did close down in March, but the schools have been open. They wear masks all day, but the schools are open. So we have a 6 o'clock curfew here all over France. So starting at 6 o'clock, no one can leave their house, but the kids go to school. So you know what?

You can't even go for a run? Or a walk down the Champs-Élysées?

No, I used to run at six and now I run at noon.

But you know, when your favorite part of France. This is what I would do every morning. I get up at six a.m. I go for a three or four mile run, and I would end at a bakery and have two pain au chocolat to negate the run times two. And I literally they thought I was a crazy American because Americans are looked we you're looked at as weird, right? In France as an American.

Well, yes, I hang out in. I'm in a little corner over here. There's not too many of us. Well, I

would go for a run and then I would show up sweating when the bakery was opening at 6:30 in the morning. I'd get 2 pain au chocolat and a café latte or a nissois, whatever they call it. What is the coffee with a little bit of milk?

God.

Cortado. Noisette.

Noisette, yeah.

I would get a noisette and 2 pain au chocolat. Oh my God, it was the greatest thing ever.

You can still do it though, Because the curfew lifts at 6 AM. So you're still allowed— you can't sit in the coffee shop, but you can go in and get the coffee.

Yeah, there's plenty of places you could go. All right, listen, uh, if you haven't read the book, go buy it right now. Uh, and you can follow Erin on, uh, the Twitter, Erin M-E-Y-E-R-I-N-S-E-A-D. Insead. Insead is how you pronounce it?

That's right. Insead. That's right.

You teach MBA students

I do. Yes, I do.

It's global, right? A lot of people come from around the world for Essentials French.

Oh, yeah. No, no. French are only 7% of our MBA students. It's really people from all over the world. It's been a perfect climate for my national cultural research.

Absolutely fantastic. I'd like to stay here forever. Well, a lot of us have been thinking about other countries after the last 4 years here. Where did you grow up in America? I'm curious.

I'm from Minnesota. Yeah, not the most international place. Don't you

know? Wow. Minnesota.

But I met my husband. So my husband's French. I met him in Minnesota. He was, uh, he was working for Northwest Airlines at the time. So, you know, the rest is history, as they say.

A Frenchman in Minnesota.

A couple.

Let's see how many of those are coming through there.

That's right.

All right. Listen, Erin. Okay, Jason. It's really a pleasure. It's been amazing. The book is amazing. Go buy right now, No Rules Rules: Netflix and the Culture of Reinvention. It's really well organized as well. Where you really— I think it's a very practical, um, a very practical book. You're gonna— it's one of those books that's a quick read that you're gonna probably listen or read to 2 or 3 times, and you're gonna really— takes a little work to deploy this, but this thinking really has made me understand what I had a— I thought I understood just from looking at the Netflix culture deck or reading about it, but you really want to read this book and apply it. And then get Patty McCord's as well. I think it's a nice— I've I've— I had Patty on as well on the podcast a couple years ago, and it's really nice to, to read both. I think you get sometimes 2 or 3 people's take on, uh, the same thing. I don't know if you read Mike Ovitz's book. Have you read Mike Ovitz's Who Is Mike Ovitz? No. So reading Mike Ovitz's book Who Is Mike Ovitz, the CAA oral history, and then reading, uh, Bob Iger's Ride of a Lifetime, which is a little bit of a prestige, like pre-running for president kind of book, but if you read that trio of books You really do start to understand what happened at Disney over those decades. Patty was on in 2018, episode 792, for the fans of the pod. Erin, thank you so much and good luck. I can't wait to read it. What's the name of your first book? I haven't read your first book yet.

It's The Culture Map. The Culture Map. Yeah.

That just goes over culture across the world and how it's different?

Right. I have a method that breaks culture down into 8 behaviors. So we look at things like how do you give feedback in different countries or how do we build trust in different cultures? And then I have a, yeah, I have like a very detailed method for mapping cultures out and looking for gaps and, um, and figuring out how to be more effective when you're leading in another country or you're leading a global team. So if your listeners are interested, erinmeyer.com is where to find me.

Oh, perfect. Oh, let me ask you a self-serving question. Which place, which country What country would you say has the most promising, dogged, resilient, biggest thinking founders right now outside of the United States? You had to pick 3 locations where you think the next Alibaba, you know, Google, Uber, Airbnb, Netflix would emerge from other than the United States and China. Where would you say? Because those are 2 obvious answers.

Yeah. Oh, I don't have a good answer for you. I mean, what I see is that there's a lot of, there's a lot of great stuff that's coming out of the Netherlands. I mean, the Netherlands is a fantastic country. And of course, they're very good at— they're one of the most egalitarian countries in the world. So, they're very good at this kind of like pushing power down in the organizations. And they're one of the most direct cultures in the world.

Yeah.

So, when it comes to candor and when it comes to transparency, they're very good at it. And they're pretty high on the comfort with risk scale, not as high as the US, but pretty high on that scale, which I think also makes people more likely to try things out. So, yeah, that's one of my favorite countries. It

really is interesting, the number of unicorns coming out of the Nordics. I look at the number of unicorns per million people, and you look at something like Sweden, they have a dozen unicorns that have come out of there, and it's a country of 15 million people or 10? Norway's 5 or 6. These countries are punching well above their weight. The other one is Australia. For some reason, those entrepreneurs there are really good entrepreneurs. They're really resilient, dogged pirates who really want to build big companies. Also, they happen to natively speak the English language, so it gives them an advantage when they come to the West.

Yeah, but that's really interesting because you've just listed now 5 of the 6 most egalitarian countries in the world. The 3 Scandinavian countries—

What does it mean egalitarian in this context?

How much we defer to authority or how much respect we show Respect we show to the boss. We can see that, of course, in a— and those cultures are much more egalitarian than the US. Israel is the other one that scores very high on the egalitarian, what we call low power distance scale. Low power distance means that we don't defer to the boss so much.

Yeah. Egalitarian is equality amongst the team. This respect of the most recent person, the lowest paid person to the highest paid person, everybody has a voice. And in America, you know, somebody in the mailroom would have no problem calling out Reed Hastings or Jeff Bezos and saying, this is stupid. That's our culture in America. I mean, we would risk being fired to say that, right?

Well, yeah, I mean, in comparison to France or China, that's definitely true that Americans are lower partisans, but we are very hierarchical in the US. And compared to the— in comparison to the Netherlands, it might shock you, but when you start working with Dutch people or Swedish people or Danish people, you start seeing, oh, I thought we were egalitarian in the US, but actually we are really focused on pleasing the boss, which is not so much the case in those countries. It's all relative and that's how I build the framework, this culture of relativity.

Yeah. This idea of getting to Denmark is something I remember reading about in The Economist or something where the people of some of these Scandinavian countries really are represented by their political class in a very tight way, you know, whereas in the United States it feels like there's such a big gap between what the people want and when the government actually gets to legalization of cannabis or gay marriage or gun rights. Like, it's just— there's something out of sync in the United States that in these other smaller countries— like, it could be the size and scale of those companies as well, right? Like, it's— they're not that big. I also like that brown bread and the schmurburg. I don't know if you had that schmurburg.

I'm sure it's because of the bread.

That's the open-faced sandwich.

I'm sure it's because of the bread.

It is. That schmurburg, the open-faced brown bread sandwiches.

It's the crust on the bread. I know, so healthy. I know, really, really thick, all those nuts in it. And you know, they put cheese and jam on it at the same time.

Butter on the brown bread with cheese.

Yum.

Oh, so good. There's a place if you ever go to, uh, uh, Copenhagen, there's a place called Ida Davidson, which is like the oldest restaurant there. And they have these smørrebrød sandwiches, which are like those open-faced sandwiches with like salmon or whatever, mackerel on them, and just 20 different things. They're beautifully constructed. And the first thing I do when I go there is eat those sandwiches. I go right to Ida Davidson and I get it. And then I go to Noma. Is that Noma, the restaurant over there? That's—

well, I'm supposed to go in, in April if, if COVID allows, so I'm writing it down. Ida

Ida Davidson. Ida Davidson. And then, is it Noma? Noma is the famous restaurant there. That's like where they do all the avant-garde stuff.

I'll tell them you sent me.

Yeah. All right, Erin, it's been amazing. Thank you so much. Everybody buy the book and I'll have you on again when your next book comes out. You got to be working on another one, I bet.

Not yet. Not yet. The last one just came out in September. Give me a little time, okay, Jason?

You should definitely do one on you know, like where you think the next— I, I feel like the reason I was really excited to talk to you, um, even more so than like even having Reid on, because I know that conversation with Reid, but you, you, you, uh, because you examine these things, you have a little bit of objectivity. I was really interested in your take on global themes and in business. And because of where, you know, 7% of people at your university are French and everybody else is from around the world, I really think there's something brewing about capitalism around the world that you might have a very unique perspective on. And, you know, capitalism plus other operating systems— socialism, capitalism plus communism, capitalism plus democracy— and how this is hashing out. Because there's something really weird going on where it seemed like China was going to run away with everything, and then all of a sudden you have Alibaba and the Ant IPO getting paused. And maybe it's going to be hard for them to actually have, you know, Jeff Bezos and Reed Hastings and whoever emerge in China because that challenges the ruling class in a way that they never expected.

That's right. Well, yes, that's right. Okay, I'll write that down for my next book. Write that book. Okay. You get to work on that. I'll be back in a few months.

I'm your agent. This is the book I think you were born to write.

Thank you.

The book about the global perspective on where can the next Netflix come out of and where can't it come out of and why because of cultural reasons. All right, listen. Okay, we got to go.

Gotta go.

Gotta go. We gotta end the show.

Such a pleasure,

Jason. All right, cheers. Bye.

Take care. Bye now.

See you all next time on This Week in Startups.