No Rules Rules: Netflix and the Culture of Reinvention | Interview with Erin Meyer

Well, hello everyone. Today I have a special guest. I have Professor Erin Meyer from INSEAD Business School, who is the co-author of the book No Rules Rules. It's all about the culture of innovation at Netflix. And she co-wrote this with Reed Hastings, the CEO of Netflix. And I've watched so many of his interviews. So I'm super excited to learn from both of you guys about how Netflix has been able to build this amazing culture. And you are a specialist at culture. So, Erin, thank you and welcome to the show.

It's a pleasure to be here, Manny.

Thank you. So let's talk about, let's talk about the, you know, this book. How I saw, you know, I read a little bit about how it all came about when you were talking to Reid, or Reid approached you initially to talk about the book, and you've already written other books on the culture map. When you went to Netflix, when you started working on this book, what was the one thing that really surprised you? Because you have been in— I mean, you've been— you're a professor of business school. So, you've seen a lot of— you've studied culture. You've studied business culture for a very long time. What stood out to you about Netflix culture that was very different compared to anything you'd seen before?

Yeah. As you said, I'm a professor at INSEAD, and I study culture in the workplace. But most of my life, I've studied national cultural differences at work. My book, The Culture Map, is all about working with different cultures around the world. I actually was not very interested in corporate cultural differences because I found corporate cultures generally to be kind of superficial. What people said their cultures were like were not really reflective of what was actually happening in the organization. Then I came across the Netflix Culture Deck. I guess some of your listeners are also familiar with that document since it's been downloaded, I think, 20 million times now. And this is a set of slides that talks about what Netflix culture is like. And I have to tell you, when I first came across that, I was pretty shocked. So there is one slide in that deck that says, at Netflix, adequate performance gets a generous severance. And I remember when I saw that, that I found it very puzzling because at INSEAD, we had been studying the fact that this idea of psychological psychological safety would lead to innovation. So if you— the idea, you know, if you want to have a lot of innovation, you need to create a psychologically safe work environment. But here was this super innovative company who was not saying, look, you are safe here. In fact, they were saying the opposite, which is, if you don't perform, you're out on the sidewalk. Yeah. Then there were other things in that deck, like our vacation policy at Netflix is take some, and our expense policy at Netflix is act in Netflix's best interest. And when I came across those things, I thought that sounded okay. I just couldn't imagine how those things actually really played out in a, like, a real-life organization. So it was when I came across that very provocative document that I actually became interested in understanding, you know, what was going on in this strange company.

Yeah. And that idea of safety, that feeling of safety, because I have been in corporate, I've been in some of the biggest— I've been— I've worked in Fortune 100 companies. I've managed billion-dollar cell phone projects before I started this business. And I remember working in those environments and you can argue that, yeah, there is a sense of psychological safety that comes with feeling that you're not going to just, you know, with adequate performance, you're not just going to be on the curb. But what I also found was that it wasn't a winning culture until— only when you were in a winning culture that sense of safety was not as important as doing something great became more important. When you were talking about— in the book, when you were talking about adequate performance leads to a generous severance package and the whole idea of we're all about you know, the A-list team and nothing else. That's what Netflix is all about. What they call talent density there. I still resisted their idea because today I have a team of 7 people in my startup and, you know, in this business. And I'm always like, like, I don't want my team to feel like we're just going to let them go at any given time and all those things. But then finally, like yesterday night when I was out on a walk and I was listening to the book, like towards the last end of the book, and you guys were talking about How a business, like the idea that a business organization is a family, that's an outdated idea. Instead, a business organization is actually a team, a high-performance sports team. That's when it finally clicked for me. I was like, yes, when it is a high-performance sports team, nobody is worried about— I mean, people do hurt when players are let go, but at the same time, it's all in the service of becoming the greatest team ever, right? So that was a big distinction. Like, the team analogy finally sealed it for me because before that I resisted it all the way. And maybe you can talk to her to talk to about that.

Yeah, well, I think that's right. I mean, both you and I, Manny, were resistors. And I think the reason we're resistors is that I'm sorry to tell you, but we still have an industrial era hangover. And you know what I mean by that is that, of course, during the industrial era, which of course powered the economy for over 300 years. So of course, I mean, we've still got these ideas around, but during the industrial era, company culture was all about error prevention, efficiency maximization, and replicability, right?

Mm-hmm.

And if you're still— if you're running a manufacturing plant, of course, those are the things you gotta have number one in mind. But today, in a growing number of teams and organizations, the overriding goal is no longer error prevention and maximizing efficiency. The overriding goal is innovating, is thinking in creative ways and creating organizational flexibility. And I think that's where we really have to, you know, kind of push ourselves to move away from these ideas that seem quite obvious because we've been doing them forever. Yeah. And start asking ourselves the question, is it possible there's a totally new way? That we could operate. And that's what I saw in my research at this company.

Yeah. And the more I've been thinking about it, the more I've been thinking about what you guys talked about in the book, the more it started to make sense. Like, I was connecting the dots of my life looking backwards, just like you guys talk about it, connecting the dots. I love that. Great, Steve, great speech by Steve Jobs that talks about the idea that you can only connect the dots backwards. And in my Experience. What happened to me, so that was that as a computer engineer, so I used to be a computer engineer and I worked in the high-tech industry for over 13 years before I let that go and started this business. And in a matter of, so 2004, 2005, 2006, in a matter of 4 years, I got laid off 3 different times, 3 different times in 4 years. So. Wow. That is insane. I mean, it's it is scary. It is also it it brings you to the realization sometimes that this is probably not what you're meant for. This is not what you cut out for. So in some ways, those being laid off was probably one of the best things that happened to me, even though every single time, I don't know. I mean, you were in Europe, so you probably were on some kind of visa, but European. visa rules might have been a little bit easier than American visa rules because in the US, for me, when I got laid off from those jobs, and I'm an immigrant, I'm from India, so I had an H-1B visa. So when you have H-1B visa and you get laid off, you have 30 days to find a new job in the US or you have to leave the country. So every single time I had to go through this nightmare of like, okay, I have 30 days to find a new job or I would have to leave the country, 30 days to find a job or leave the country. And when that happens to you 3 times, you start to think about, is this really what I want to do? Do I really— like, is this good for me? And what I found out through this process was that the layoffs were actually great for me because they got me to a certain point and also got me to the realization that this was just not for me. I was not performing at the highest levels. Like, I was not going to be able to actualize my potential as a human being if I was going to be stuck doing what I was doing. So in some ways it was hurtful, but in some ways it was probably the best thing that happened, because only because of those failures was I able to find what I do now. So.

Right. And I think that's such a great example of the kinds of things that Reid talks about, because he's always looking at, you know, his— what he thinks of as his past failures, right? And the lessons that he can learn from them. So of course, I mean, the most interesting one is this story that Reid told me the first time that I interviewed him. for this book, No Rules Rules, that we co-authored. He told this story about his first job, or his first company, which was this company called Pure Software. He'd opened up this company, and at the beginning, it was just a small group of people, and they were operating fast and loose. There were no rules or process guiding the way that people were working. But then as the company grew to a couple hundred people and a couple of thousands of people, some of the people in that groups started to take advantage of the freedom that was given to them, right? So like, for example, there was this guy named Jim who used to fly every week from San Francisco to LA. And because there was no travel policy, he started flying first class, right? So Reed, when he found out, he was like, oh, we have to have a travel policy, right? And they put in place this detailed travel process, telling everyone exactly how they could travel. And then there was this woman, Charlotte. She used to bring her dog to work every day because there were no rules. Why not? But one day, the dog chewed a big hole in the carpet, right? That was really expensive, so Reed created an employee handbook. One of the rules in the book was no dogs at work. Then, as the company grew, more and more processes and rules took place, which of course happens in almost every organization as they grow large. What happened then is that the most innovative, creative people in the company, they left the organization. to go work at companies where they could, like, run free. They didn't want to work in these kind of, like, high-rule environments. And then the people who were really good at following process, they were promoted into these senior management positions, and they were not the most flexible people. So when the company changed direction, they were not able to be flexible enough to change direction with the organization, in that case, from C++ to Java. Mm-hmm. So Reid, who thinks about that as his big leadership failure, took that his lessons after having sold that company into Netflix. And his lessons were, you know, if you want innovation, you have to give employee freedom, right? Mm-hmm. And if you want organizational flexibility, then you need low process. Uh, so I think that's actually very interesting. I mean, you went through this process of leaving a bunch of companies. I guess now you have a lot of freedom. But when you were talking, I was thinking about those people at Pure Software who also left that organization. In order to work for a place they could, they could run free. And that's what Reed tried to do then with Netflix, right? Create this environment that was really high freedom for the employees. That was his overriding goal.

And that's what happened at Netflix, right? Back in 2001, as you guys were talking about, they had to lay off, what, 30% of the workforce? And that created— I mean, of course, Reed was scared, as I would be today if I had to let go a bunch of my team members. I would be very scared because I would feel that it would negatively affect the morale of the people, the culture, and everyone would feel like, oh, the morale part of it. And what he found out was that— what he and Patty McCord, I think they found out was that even though for maybe a few weeks people might have felt down, overall the performance increased, everything increased. And this is so like the overall performance of people around Increased, and for a number of different reasons. Let's talk about that.

Yeah, that was what Reed calls his Damascus Road experience. Because although he built Netflix with the idea that he wanted to have high performers so he could offer them freedom, that was the idea. The idea was, if I want a high freedom environment, then I have to have really top performers because lower lower performers or medium performers, they need rules and process, right? But what if I go for just top performers and then try to give them lots of freedom? But even though he had that as his idea, he also believed that the reality of any organization is that there are always some really top performers and some medium performers. I mean, poor performers, okay, you get rid of them. So as you said, in 2001, the company had grown to 120 people, and then there was this financial crisis. He had to lay off 30% of them. And he just felt sick as he got ready for that. You know, what was going to happen? The employees that he already had were busy. How were they possibly going to accomplish what they needed to after these layoffs? So the layoffs happened. And of course, it was horrible. People cried and slammed doors. But as you said, within a couple of months, something amazing happened, which is that those 100— those 80 people were now getting more done than the 120 people had been before them. Right?

Hmm.

And he came to the conclusion— and beyond that, the atmosphere had gotten much more positive. It felt like a group of people who were madly in love with their work. And he came to the conclusion that for really top performers, because of course, the people he'd laid off had been the medium ones, for really top performers, a great workplace is stunning colleagues. It's not a sushi lunch or a fancy office. And that then became his overriding goal, was to create these environments where high performers could be surrounded by high performers. And that would then create this kind of upward spiral as performance is contagious.

Yeah. And one of the things that I found fascinating, only when you guys were talking about in the book that I actually started that made a lot more sense to me is that when you have even a few adequate performers, they will bring down the performance of everyone else on the team because they suck up managerial resources. And not only that, like, they reduce the morale of everyone that's working and people have to work around them and all of the— like, so, so, so nuanced. But really, when, when I think about it in terms of one of my favorite principles of management, which is the 80/20 principle, that 80% of results come from 20% of effort. And it's, it's the idea of leverage. And what you find is that when you have to devote any percent of effort on a thing that's not working well, it's sucking, it's sucking that effort, it's sucking all of the time, effort, energy, resources from stuff that actually is doing very well. And that means you're unable to grow that thing dramatically, you're stuck managing a lower-level problem in some ways.

Yeah, I think that that's one of the most interesting reflections about this is that most managers think an individual performance problem is an individual problem, right? Like, if I have one person on my team and he's low-performing, I think, well, that's an issue between him and me, right? But actually, we know from a lot of research that performance is contagious. So, I mean, there's that story in the book, but this colleague of mine At a different business school, William Phelps, Professor William Phelps, he did this fascinating study where he invited 4 MBA students into his lab at a time. He gave them 45 minutes, and he rewarded them financially based on how well they did with a task. And unbeknownst to them, in 50% of the groups, there was this interloper, right? It was this actor named Nick. And Nick had been hired to act just like a regular MBA student, but to do some things that were like let's say less amazing. So sometimes he would act a little bit bored, kind of put his feet up on the desk and like text his mom. Sometimes he would act kind of jerky and say things like, have you ever even attended a business school class before? But what's so interesting is that Professor Phelps showed in study after study after study that even when the other 3 MBA students students on that team were the top-performing MBA students. If they had Nick on the team, they performed 45% worse, less. Yeah. And even, I think, more startling than that is that they started in these 45 minutes, the other MBA students, they started to behave like him, right? So, I mean, he actually has these videos, right, of these MBA students. So you can see that, for example, there's one, there's one video where the MBA students come in, the 3 and Nick, right? And the real ones, they're like really excited to get started, and they want to get this prize money. But Nick is playing a depressive pessimist.

Mm-hmm.

And about 20 minutes into the collaboration, you can see his attitude is bleeding out onto the rest of the team, right? And you can see the others on the team, they're kind of like, They're starting to sit back. They're starting to get kind of bored. One woman actually puts her head down on the table at one point and says, when is this going to be over? So it's just such a clear illustration of the fact— and I'm sorry to say it— but the fact that the clearest indication of how well a team will perform is not what the best performer is like, or even what the medium performer is like. It's what the worst performer on the team is like. So that's why I think we can really, when we think about it like that, we can really see why adequate performance gets a generous severance leads to such important results.

Yeah, yeah, absolutely. Like, that's, it sounds brutal sometimes when you're thinking about it in terms of human relationships and behavior. But the more I have, like, once you gave the analogy of a football team or a professional sports team, the more it became clear, like you have one cancerous team member, he's going to take down the performance of everyone else. There are only 11 people. So even one team member's performance can basically screw up the whole game at that point of time. So yeah, I mean, the other thing that I want to talk about, the culture of candor, or being able to give honest and open feedback. Again, that was also like initially when it was being talked about, I felt like, oh, that's probably going to be a little painful to give that kind of feedback. I think about my team sometimes, and I think about— or when I was reading the book, I was thinking about how to structure those conversations, because sometimes even I, as a CEO, I get scared of giving that precise of feedback. to that person to not make them feel bad. So I'm like kind of finding my way around that topic, trying to make that happen. And even like in my conversation with some of the other team members, they might bring it up, but then with that person, they will not bring it up. So, so let's talk about that because that's a huge part of what Netflix has been able to build.

Yeah. So that also, I have to tell you, that was actually the part that I was the most uncomfortable with. I mean, I'm from Minnesota. I don't know if you're familiar with it, but we have this Minnesota nice. Yes. Basically means we are very indirect in Minnesota. We do not believe in radical candor in Minnesota, I think we can say. But if you don't mind, Andy, let me just say one more quick thing before I move on about candor, just to kind of close the chapter about talent, what they call talent density.

Talent density, yep.

So I do want to say that there's like kind of 2 other like practical things, you know, because some of your listeners I think might actually be thinking about trying to use these things. So one thing is that they don't just say adequate performance gets a generous severance, but they really have this tool, the keeper test, right? And I think whether you believe— I mean, many companies, I think, will feel, well, adequate performance gets a generous severance is too harsh for us. We don't want to do that here. And whether or not you want to, you know, you want to take it that far, I do believe that it's every manager's responsibility to ask themselves the keeper test. And the keeper test is basically just this simple activity. It's a COVID activity. Don't worry, you can do it alone in your office or in your bedroom. But it's basically that you imagine that each person on your team is coming to you, like maybe Stanley comes to me and he says, you know, boss, I'm sorry, I'm leaving the company and I have another job offer. And then you ask yourself The question, you know, how am I going to feel when Stanley tells me he's leaving the team? Right? Am I going to be devastated? Am I going to say, no, Stanley, don't leave. Anything, anything, don't leave. And if that's how I'm going to feel, well, that's clear. Stanley is the right person for that job. Right? Am I going to feel excited? Am I going to feel relieved?

Hmm.

Excited thinking about who I could get in that position? or relieved thinking about the fact that I don't have to deal with that issue anymore? I mean, if so, that's a clear sign that something needs to happen, right? I mean, if you're not up for adequate performance gets a generous severance, then maybe find another solution. But you can't just sit around wishing your people were gonna come to you and tell you they were leaving the team, right? Yeah. So in any case, I wanted to wrap up with that part, with that section, because I hope people will at least kind of start, maybe do a little keeper test tonight when they get home. That's

right. And you have a precise question there. How hard would I fight to keep this person in the team if they were willing to go or if they wanted to go? Is that the precise keeper-defe definition?

That's right. And I think some people— I mean, actually, many people ask me the question, well, what if he's a really great team player, but he's not really great at his specific job? Of course. It doesn't matter why you say, I'd fight to keep him. If you'd fight to keep him, he's the right person. You want to keep him. Maybe you'd say, don't leave because you are the glue to the team. If you leave, we won't laugh anymore and we all want to laugh. Please don't go. Right? I mean, it doesn't have to be, I only judge people based on one narrow criteria, but that's what I love about the keeper test is you really— I mean, it's just a question It's a question of looking inside, right? Yeah. In order to ask that question.

It's not just the technical performance. It's everything else that you have to consider when you are thinking of whether you want to let that person— like, how hard would you fight to keep that person?

That's right. And of course, at Netflix, they say no brilliant jerks, right? So it might be that when someone told you they were leaving, you'd feel a little disappointed thinking about the technical skills that you would That you would lose, but you also would feel quite relieved thinking about the fact that that bad personality was gone. So, you know, let the guy go.

And when you said no brilliant jerks, that's exactly what I was thinking about when they were— when you guys were talking about radical candor at Netflix, because I was like, man, they probably have a bunch of jerks who are just calling each other out. And it's going to be a tough place to, you know, just survive there or to feel good about yourself on a day-to-day basis because people are just attacking you all the time. But there's a very different— like, that's not the way Netflix does it. Yeah,

well, there's a very strong focus on, I guess, maturity, right? I mean, they say at Netflix that they hire adults and treat people like adults, right? So if you have— and it is true. I mean, I will say I conducted 200 interviews with Netflix employees past and present. And sometimes there were people who were really taking the candor too far, but they generally weren't at the company too Right. Because they have that no brilliant jerk. The feedback, they have these 4 A's. The first A is that you have to aim to assist. The second is that the feedback has to be actionable. You don't give feedback just to make yourself feel better or to get frustration off your chest. It really has to be, I saw a way that I could help that person improve their performance, so now I'm courageous and kind enough to give The feedback. Then the other 2 A's are about receiving the feedback, meaning if you dare to give me feedback, then I'm going to tell you thank you. I might not feel good when I hear it, but I'm going to say thank you for giving it to me. But I don't have to do what you tell me. I think that's actually the 4th, accept or deny. Okay. Because, of course, at Netflix, you get a lot of feedback from a lot of people. It doesn't mean you have to be changing your route every You know, every 2 hours. So I did find that people actually were quite thoughtful and careful while building this environment where all of this feedback was happening. That doesn't mean it's always comfortable. I mean, you know, I think anytime that we're getting a lot of feedback about our performance, it sometimes feels uncomfortable, certainly.

Yeah. And to recap for our readers, there's this— or for our listeners, there's a formula that It's a, or I'm sure they teach that in their onboarding process to everyone, which is the 4A formula for giving and receiving feedback. The A stands for aim to assist. First A is aim to assist. Second A is actionable. Third is appreciate. And fourth is accept

or deny.

Accept or deny. So it's like 2 parts of it are how you give feedback, 2 parts of it are how we receive feedback. And aim to assist part of it is, I think, the most crucial part of the whole thing, because a lot of times we get caught up in our ego where all we want to do is tell someone that they're wrong. And that's the theory of the brilliant jerk, right? When you're surrounded with people who all they want to do is tell you that you're wrong, that doesn't really help the company move forward in, in a real, you know, meaningful way.

That's right. And then beyond those 4 A's, they— I mean, I think, um, I know that now in the US a lot of companies are talking about feedback right, trying to develop a feedback culture. And I hear from many organizations that it's not really working for them because people in general don't like giving feedback, right? But what I found at Netflix is really, I think, critical in just a couple of methods that they're using to make sure the feedback gets out there. And one very simple one is just putting feedback on the agenda, right? So frequently, like if I have a monthly meeting with a colleague, frequently feedback is the last item or the first item on the agenda. So we'll— or maybe I'll come into my office and it will say 10:00 AM feedback with Jane, right? And Jane will have put that on the agenda. This is a moment where we're going to— she's going to say to me, do you have any feedback for me, Erin? And I'm going to try to aim to assess, right? And then she gives me feedback about how I could improve my performance. So, I mean, there's nothing particularly provocative about that, but I did find that that was an easy mechanism for making sure the feedback gets out there that otherwise people don't get around to. And then, then they do this crazy thing, which is these 360 feedback dinners.

Live 360, is it?

So the process is, which I just thought was shocking when I first heard about it, the process is that about once a year or so, we get together as a, as a team, Right, over several hours over a meal, and we take turns. So if I'm up first, we go around and each person at the table gives me feedback about what I could do in order to improve my performance, right? And then we go on to the next person. And the first time I heard that, I just thought, oh my gosh, but what's the point? Why, why drag my weaknesses in front of the whole team? I mean, can't we do that in But I came to see that there were a couple of really important mechanisms that happened. One is that it brought all that secret stuff just out in the open, right? So instead of whispering behind one another's back, suddenly it was just like all out there for us to talk openly about. And beyond that, this thing happened where like, if one person gives me feedback, I never really know if it's about him or about me, right? Mm-hmm. But if— but in these meetings, when we go around, one person might give me feedback, and then the next person might say, no, I disagree with what he said. I actually love that about you, right? So you start to see what's just one person's feeling versus what everyone thinks you need to do differently. And often Netflix employees describe this to me as the greatest developmental moments of their career. So I've actually gone to use those at my teams at INSEAD, and I can tell you, if you If you don't have too much conflict on your team and you do something like this, it works. It works great, right? Even though it sounds crazy.

Yeah, no, it does sound crazy. And I'm excited to try and put this into place for their next review process, or not even next quote unquote official review process, but in the next maybe quarterly review and see what happens. But one of the things that, as I was thinking about it, I think you said it in the book, you Well, actually, the leader has to go first for people to feel comfortable enough, for everyone else to feel comfortable enough to follow suit. Because if I just had some of my team members do it to others, they may never get to the point where they are as candid or open as they could be if I invited feedback first and I forced them to give more real and genuine and raw feedback.

Yeah, that's right. So I do believe that most companies are going about this wrong, this whole feedback thing, which is that they're starting with First, I'm the boss, I'm going to give you more feedback. And then I'm going to try to get you to give one another feedback. But they're not focusing on what I believe they should do first, which is getting the teams to give them feedback. Because once you can get feedback going upward, right, then that's when you start to see the real value. And also people, you know, that's like the hardest part. So people dare after that. So I did find that Netflix is actually incredible because the managers are so like continually asking for feedback and then celebrating it when they get it. So, I mean, it's one of the hysterical things about working with Reid is that frequently when I sit down for a meeting with him, he pulls out his email to show me the latest person who dared to give him negative feedback. And the more they like really told him the truth, the more he's proud of it. Yeah. And then he passes it around, he shows everybody, he's, oh, this is what I'm working on. He sends his 360s out to people, I should be highlighting what he needs to do differently, right? So if you as a boss start getting this, you know, I need to improve, and it's through the feedback to me that I will improve, and I'm going to share to you what I'm working on, then other people become comfortable with it also. It has to start there.

Yeah, yeah, that was, that was a really small but very crucial insight for me to pick up. So I knew that otherwise it would fail every single time if I tried to pull it off with my team. The other part, and I know we're running short on time, so I want to jump to it, was, I think, to me, one of the most, one of the most interesting pieces of the puzzle. Finally, when you're putting the whole culture together, you lead with context, not controls. It's, it's so, it sounds very, uh, woo-woo sometimes until you actually have to— like, what, what they're trying to say makes so much sense. What you guys are trying to say makes so much sense. But tell, tell our listeners, like, it's hard to understand, lead with context, not controls. And I'm still thinking about it. So, so yeah, yeah. And

I have to tell you, I think it took me a full year of research before I actually understood how it Mm-hmm. Because it's one thing for people to say, oh yeah, well, we don't need management approval. And everyone, I mean, like everyone at Netflix, every time I sit down for an interview, someone's like, I want to start by telling you about this huge project that I worked on. My boss didn't agree with that. It was really expensive. His boss's boss didn't agree with that. But I did it anyhow. And it was a huge success, right? Or sometimes a huge failure. But, they all want to tell you about this freedom that they have to make these big decisions. But, of course, then you're like, but how does that work? How can that actually happen in a real organization? There's this image that one Netflix executive told me about decision-making. She said, you know, at most companies, decision-making is like a pyramid. You have the chairman at the top of the pyramid. pyramid, and then you have the lower-level employees at the bottom. The low-level employees, of course, they can make small, inexpensive decisions, but for important decisions, they have to get pushed up the pyramid. Okay, we all know this method, right? But at Netflix, leadership is like a tree. With the tree image, you have the chairman who's down there in the dirt, right, down there with the roots of the tree, setting the direction and the context for the company. This is the direction that we are moving. This is Here's our North Star. Here are the elements that we have to keep in mind when we take decisions. Then we've got the senior managers who are at the lower trunks, the big branches, setting more context for their areas. Then you have, finally, the lower-level employees or lower-level managers, at least, who are at the outside of the tree on the small branches. Those are the people who are making the the big decisions, taking in mind all of the context that's been set for them. So that's kind of the image. Maybe I'll give a little example about like what that actually looks like. Sure. So one of my favorite examples was this guy Adam who talked about purchasing this movie Icarus. And when he purchased that movie, so they were at a film festival, and he had bid $2.5 million for the film. And it was clear he wasn't going to get that. So he was trying to decide, should he up it to more, like $4 million or $5 million? But that amount had never been paid for a documentary before. That would like totally reset the documentary market. And he ran into Ted Sarandos, right, who's now the co-CEO, but at the time, the head of all of content. And he said to Ted, here's what I have going on. What do you think I should do? And Ted said to him, well, is it— wait, no, I forgot the expression. Oh, he said, is it the one?

Mm-hmm.

And Adam was like, well, I don't know. I mean, do you think I should— what do you think I should pay? And Ted clarified. Well, look, I'm not going to tell you what to pay. That's, you know, we pay you to make those decisions, right? That has nothing to do with me. But I am going to just suggest that if it's the one, like if this is going to be a big hit, like a Super Size Me documentary, then you should pay whatever it takes, right? You know, $4 million, $5 million, whatever, right? But if it's not the one, if it's not going to be big like that, then don't do it. Right? And then he left. So we can really see here, not that the high-level person is the gatekeeper or the approver, but that person is setting the context to help the employees make the decisions. I mean, the good part was that it did end up winning an Academy Award. That's the nice part.

Yeah. And as you said, like, the leader is setting the context of the overall decision-making and not controlling the decision-making process in this example. And there's another example, it might be a little too long, that I really loved, which was the example of Mighty Little Bee, right? Ooh. It's a long example, but it really clarified how they're going about doing it, which was starting with Reid's vision of saying that we have to expand globally. That's where the next frontier is, to tell Ted Sarandos— Sarandos? Sorry, I listened to the books, I don't really remember, and I listened at 3x, so sometimes the names get a little confusing. So, huh?

Sarandos. Yep.

Sarandos. Okay. So Ted Sarandos, I think he had to take that and just like when he was talking to his team member, all he said was, you need to run tests fast, and you need to get a lot of data on this international market as to how we can grow. Go figure it out. He didn't really give her a specific— nothing more specific than that. And she was new to the company. So she, she's a little skeptical of this whole thing, but they pulled off a great show as a result of this whole process that they go through, or at least of thinking about the North Star guiding the overall decision-making rather than the person deciding the overall decision. Is that kind of—

Yeah, that's right. And of course, they say at Netflix, don't seek to please your boss, seek to do what's best for the company. But I think, so of course, I do believe that that kind of the freedom that you said that comes with this leading with context, not control. I do believe that's the most important kind of freedom that they offer at Netflix. But just to give you a couple of other ideas about some of the ways you may be controlling your employees without even thinking about it, but like at Netflix, they don't believe in KPIs. They don't believe in management by objective. They don't believe in annual bonuses because these are things where that we— ways for managers to give their employees some level of freedom, but still keep their hands firmly on their shoulders in order to make sure they're kind of like moving in the right direction, right? So the whole methodology is that if you have the right people, and none of this can work if you don't— if you wouldn't fight to keep your employees, right? If you have medium employees, of course this can't work, but if you have the best employees That you don't need to manage every step of where they're working or what direction they're moving in. You can just set the context, meet with them frequently, but allow them to decide. And then that also leaves the organization to be more flexible because those processes are not then anchoring us or tying us down to running in a certain direction. And that's where we've really seen I think, the magic of the Netflix methodology, which is that they were able to shift from being a DVD-by-mail company to being a streaming rerun company to being a multimedia company competing with Disney. They were able to do those 3 dramatic shifts in about 10 years, which is highly remarkable. Right? So if you seek to have an organization that's more innovative or more flexible, then this is really a methodology to keep in mind.

Absolutely. By the way, did you read Mark Randolph's book before you did the research on this one as well?

Well, he wrote it while we were working on our book.

Oh, okay. It went on at the same time.

It took us 3 years. I did a year, a year and a half of research, and then we— I don't know. Okay. It took a long time. A year into it, Mark Randolph Mark decided he was going to write the book, and the next year his book was out. So we started before him and we ended after him. So I did, I mean, I interviewed him and I did read his book, but not at the beginning. I didn't have like his groundwork.

Yeah, because I feel like that one, that book was a great primer in the sense how you go about in the early phases of building and innovating, like of just going through a startup phase of getting to an idea, figuring out an idea and really making it work, or at least getting your product-market fit and all of those things that he got to a certain phase of. He got Netflix to a certain phase before Reed and him parted ways. And then this book kind of lays a lot of the journey of a big tech startup, I would say, because Netflix is probably one of the most coveted places to work for. still, with the level of innovation that they're doing, with being such a giant company, it's still— I'm sure Reid wants it to continue to operate like a startup and not like a big company culture that happens more often than not.

That's right. Right. So Marc Randolph's book is about the history of the early days, history of the company, which is a very fun read. In our book, we tried to We were trying to write a how-to. I mean, I really wanted to— we were both really focused on writing a book that would be useful to other organizations. So we were trying to think, what is it about this company that can be extracted and passed on into another company? The principles don't really make sense if you think about them separately, and until the book, I believe most Most people were just talking about it like in pieces. So my goal was to kind of put it together so that entrepreneurs or even just, you know, the leader of a department could think about, you know, what can I do in order to take steps in the right direction, big company or small?

Yeah. And that's what I was thinking about. I was thinking, would this book be something that I could have the people at my previous jobs— could I give it to one of the director-level people and say, hey, you guys could possibly implement. I, I don't know if they could or if they would have the power because I feel like this is, this is a book that has to come from the top down, or not top down, but the culture has to be set by people high enough that people feel safe to implement this. Because the level of like the kind of stuff, especially candor and talent density and all of those things, that requires such a, you know, it's not easy to pull off unless you have the team, the bigger team aligned with doing this work with you. Would you agree?

Yeah. You know, I think there are some aspects of this book that certainly have to be implemented at a company level. I mean, like the things like that you don't need a approval for spending money. I mean, if you work at Johnson& Johnson, you can't say to your team, well, you guys can take as much vacation as you want, even though they can't in the rest of the company. Yeah. But I do believe, I actually, I mean, I have also worked in big companies. I used to work for McKesson, this big healthcare company. I also, I do, I firmly believe that many of the things that are being done at Netflix, those lessons can apply to just any team. leader who wants more innovation? Like, let's say I'm managing a team of just 10 people, and maybe the rest of my company, they're really focused on like top-down management, right? But I'm focused on getting more innovation from my team. So I think, okay, what's one thing I could do in order to increase talent density? Right? Okay. So one thing, I'm going to start using the keeper test, right? Or I have enough money to hire 3 people, but I'm going to follow the rockstar principle that I learned from Reid, and I'm going to hire just one person, but pay them what I would have hired those 3 people in order to get the best one. Right. So I just take one step to increase my talent density. And then I take one step to get more feedback. Of course, any manager can do that. Right? You know, we start having meetings where we pair off and give one another feedback in order to see if we can be more helpful. Right? Get a little more talent density, a little bit more candor. And now I give my employees a little bit more freedom. Right? A little bit more, you decide. You know, I'm just here to set the context. Try to put yourself down at the roots, right? So, yeah, you know, I believe that at least some of the lessons can be applied anywhere. Although you're right, you're not going to try to do the whole thing, but you have to do it throughout the company.

Yes. No, you are absolutely right. Like, there's a lot of lessons in the book that apply across the board, no matter what company, what size of the company. If you are a culture that— or if you are a company that's trying to innovate, this is something I literally said, this is one of the best leadership books that came out in the last year. Like, it is hands down because you guys changed the way we think about leadership. A lot of leadership has been the same old, same old, but this book kind of breaks the mold, breaks the path of what's— how we can think about leadership, how we can think about building a team, how we can think about building a culture of feedback and candor. And also, one of the things I've struggled with, which I would love to get your feedback on, is opening up the books. Now that part is becoming rather thorny as a private company. All right. And if I start sharing those numbers, I feel like, then I have to constantly— like, like, I, it's going to be difficult to To use, like, to have those numbers out there, but then to tell the employees, and I know you guys talk about just pay them top of the market, which I do, but I still feel like some people are just unsatisfied even after they're getting paid top of the market. They're like, if the company's making so much, how come I'm not sharing in on all the stuff that we're doing? Yeah. So I have struggled with it and I haven't been able to find an answer yet because there are There are people in my team today who are getting paid top of the market, and they're still not particularly satisfied with— given what the company did.

Yeah. Well, I do think that some of the most provocative things that they're doing at Netflix are around organizational transparency. I mean, I told that story in the book about how, when I was writing the book, I sent this very early-stage I sent it to Reid, and then the next week I was in Amsterdam interviewing an employee there. He said, oh, yeah, when you said in that chapter... And he started referencing this early draft I'd sent to Reid, and I was like, what? He said, oh, yeah, Reid sent that out. I said, to everybody? He said, oh, no, just the top, just the QBR team. Which is the top 800 people.

700, yeah.

And I was like, well, why would he do that? And since then, I mean, there was actually another story which happened since the book came out, which is that the book was supposed to come out in May, but because of COVID we pushed it back to September. But Reid does not like to keep any secrets from his employees. His employees knew that the book had been been written. So he sent it to them. He sent it to all 8,000. And he said in the email, I want to make sure that you're in on the book, but please, if you read it, buy it when it comes out. I count on you. And the publisher, she was furious. She couldn't imagine. that her author would do something like that. But Reid just has this very, like, very strong belief that if you want to develop trust in your employees and that if you— responsibility in your employees, you need to show them that you trust them. So making these, like, big symbolic gestures of just sharing everything, right? All the numbers with Right. I share all the numbers with them and then they respond by behaving more responsibly. So that's, that's the cycle, right? Of course, of transparency and responsibility, but I know it's pretty dramatic, Manny. So I understand you.

So what do we do here? Like, how do I manage someone like that who's getting paid top of the market, but then they also feel like because the company is growing that they are not sharing in all the upside of the company's growth.

Yeah, well, I think that here you need— I mean, put them in charge of the finances, right? I mean, if that person were in charge of making sure that the P&L was coming up positive, then they— and if you had salary transparency so they saw what other people were making also, right, then they have to really think like an entrepreneur. Mm-hmm. And I think that that's kind of the idea, right, that the more you put people in these situations where they feel like they're, they're actually like running their own, their own operation, that then they move from being like whining about what they need to actually behaving responsibly. I mean, I'm being— of course, I'm making it sound much easier than it is. But that, that is kind of the, that is kind of the idea behind it.

Hmm. So we have a question from— we have a few questions here, but I'll just pick one of them because we're out of time here. The question is, how does Netflix hire people aligned with their mission and values? Because that is a hard thing.

Yeah, well, I actually think that's one of the most important questions someone should ask because when you join Netflix, you know what the culture is before you join, right? I think that's really important because if you believe adequate performance gets a generous severance and you and people think they're going to get job security, then that's not really a fair process, right? But, if people recognize, here's an organization where I'll be given a huge amount of freedom to make decisions that I believe in, and I'll be given pastures to run free and dream big and implement huge, right? But, I also know that if at any moment I'm no longer the best person for this job, then I'll be given a nice severance and I need to move on to another job. There's no job security here. Then you have a certain type of person that opts in. That's really what we've seen at Netflix. I actually had one manager who told me she thought that the entire success story of Netflix was because people know when they join the company, adequate performance gets a generous severance. Because of that, only risk-takers choose to join the company. And that creates this momentum of people being willing to try things out.

Yeah. And I think this is— you probably will need to write a book on hiring, how Netflix goes about hiring people, because there's a whole— so much that goes into building the team part of the equation that hopefully you guys will cover in the next book that you guys talk about. Erin, this has been fantastic. There's been so much learning. Your book is just amazing. You and Reed, you guys did a terrific job at explaining how the culture at Netflix is working today and why they are one of the most innovative companies today. And I could not recommend it enough, highly enough to anyone who's looking to learn to grow themselves as a leader. So all those entrepreneurs, all those managers out there, who want to grow their leadership, this is definitely one of the greatest books to have come out, one of the greatest leadership books to have come out in the last one year. So please check it out. This is absolutely 100% my recommendation. So Erin, thank you very much. And I would love for you to tell us where to find you, where to find the book and all the good stuff.

Thank you, Manny. I've really enjoyed talking with you today. If you're interested in this topic, get the book, No Rules Rules. You can find it all over the place. Join me on LinkedIn where I post frequently both about Netflix and corporate culture and also about national cultural differences. And please visit my website at erinmeyer.com.

Awesome. Yep. All right, guys, um, this was great.