VBACE Day Two Keynote: 'No Rules Rules' Author Erin Meyer

Hi, I'm Ed Boland, welcoming you to day 2 of VBASE, NBAA's first-ever virtual business aviation conference and exhibition. Today, our speaker is Erin Meyer, who joined with the co-founder of Netflix, Reed Hastings to author the current bestselling book, No Rules Rules: Netflix and the Culture of Reinvention. Today, I'm going to interview her in depth about her book and the principal learnings from that. Erin, welcome to VBASE.

So nice to be here with you, Ed.

Erin, it's really difficult to imagine a more perfectly timed book. I think since the COVID crisis has enveloped the world, we've seen Netflix kind of go from a household name to almost a family member. It seems one of those companies that is perfectly positioned to take advantage of the chaos that has been created in the wake of COVID And I think that raises several questions that I'm excited to explore today with you. But first question is, how did you get How did you get connected with the co-founder of Netflix, Reed Hastings?

Oh, yeah, well, that's actually an interesting story. So I'm a professor at INSEAD, which is a business school in Paris. I'm joining you from Paris right now. And I actually had not heard of Netflix— heard of, but I was not a user of Netflix in 2014. So in 2014, I wrote my first book, The Culture Map. And when it came out, it was kind of like a slow starter. It took a while before people started reading it. And I guess that's why I was so surprised when I surprised when one morning I woke up and I opened up my email and there was this email that said— the subject was Peace Corps. And it said, Erin, hi Erin, I was a volunteer teacher in Africa near where you were. My name is Reed. I am the CEO of Netflix. And I remember I thought it wasn't real when I got it. I thought, oh, the CEO of Netflix wouldn't send out a message like that, but it was him. And I started working with him then on some of the concept of the Culture Map book, getting them ready for their international expansion.

Innovation and flexibility are clearly things that we have come to value significantly in the COVID crisis. But the idea that you would build a company on innovation and flexibility is a little bit contradictory to kind of the way companies have been operating for hundreds of years.

Yeah, well, that was actually my overwhelming learning doing this research with Netflix is that most of the corporate cultures that are around us are kind of operating with this industrial era hangover. And what I mean by that is that, of course, during the industrial era, we learned all of these methods to reduce error and create efficiency and increase replicability. And of course, we needed those things when our main goal was running manufacturing plants. But today, where more organizations are looking to be more flexible and more innovative, it's no longer error reduction replicability that we're going for. It's, you know, how can we get our employees to think more freshly? And how can we be more flexible? And that's where we really need to think about a whole new set of principles. So that's what I learned from Netflix.

But having said that, now there are— and you mentioned manufacturing companies— for NBAA members who are in aviation, safety process procedures are kind of fundamental. Safety first, reduction of errors. But I think what we're learning during COVID is that we need to approach safety and approach operations with flexibility and innovation combined. So part of this, it seems to me, is how to learn to take the process procedures that create safety and still imagine them in new, flexible, and innovative ways, just as we've had to learn how to Maintain an aircraft with groups of people, fly airplanes with teams of people. All of that has required kind of a building on processes with a fresh, innovative look at how can we do that given the challenges we have.

Yeah, that's absolutely correct. Of course, when we are working towards safety-critical goals, rules and process are our friends. And that's— we know that, right? You know that, that if you're operating an airplane, more important than innovation innovation is being safe. But I think that even in industries such as yours, you can think about, you know, what are the error— what are the areas of the company or the organization where we're going for error prevention? What are the areas where we need that replicability and to make sure that there are no mistakes? And what are the areas that we're going for innovation and flexibility? And then you can really separate those two and have different ways of operating, one with process

Well, that's— I think that's really important. So what I'd like to do is maybe have you talk a little bit about some of the fundamental principles that have helped Netflix reinvent itself time and time again to always seem to be prepared for the next big thing.

Yeah, and maybe before I do that, I'll say that it's because of this ability to reinvent themselves that I was so interested in doing this research at Netflix. And if you think about it, especially for our participants in the US, it wasn't very long ago that Netflix was a DVD-by-mail company, right? They had these warehouses around the US and they were putting these DVDs into the post and sending them out to their users. Of course, then the environment shifted and they reinvented themselves as a high-tech streaming company. Now streaming rerun television shows and old movies to their users. The environment shifted and Netflix reinvented themselves. This time as a media company competing with Disney, opening up their own studio and hiring their own actors and their own directors. And I think that's the kind of flexibility that is so, so rare and now so sought after. So we really have some critical things to learn from this organization.

And some of them have been relatively radical in the way that they have approached it. But I think among other things, You talk about in the book the importance of getting top performers. I think Netflix calls it talent density. Can you talk a little bit about the importance of attracting and retaining key talent?

Yeah, so when Reed started Netflix, I mentioned earlier that he had this idea of trying to have less rules and process and more employee freedom. But he also was concerned that as the company grew, if he didn't put rules and process in place, that the organization would descend into mayhem, right? So he kind of tried to think about how to make that work, how to set it up. And he realized a couple of things that we can kind of say that's like the Netflix experiment, right? The first was that most rules and process at most companies are set in place to deal with those, let's say, not great performers, right? The really high performers, our best employees, they don't need a lot of rules, right? So his thought What if I had an organization that was made up almost entirely of high performers? Those create a higher talent density in the same amount of people. And then in addition, what if I try to add a good amount of candor so people are giving one another a lot of open feedback? And that would create a co-accountability, which would then allow me to have a lot less rules in the organization. So that was kind of like the overall structure, the overall experience.

Yeah, so talk a little bit more about that, the importance of top talent. How do they identify them, how do they attract them, how do they retain them?

Yeah, so they say at Netflix adequate performance gets a generous severance, and I know when people hear that it sounds a little bit unfair. a little bit cold. But I think the really important principle here is that performance is contagious. And we know that from a lot of research. So I have this colleague in another business school named William Phelps. And he did this fascinating study where he invited 4 MBA students into his lab at a time. He gave them a 45-minute task and he rewarded them financially based on how well they did. Now, unbeknownst to them, on half of the groups, there was this interloper who was this actor named Nick. And Nick had been hired to act just like a regular MBA student, but also to behave in a way that was, let's say, a little bit less amazing. So sometimes he would do things like put his feet up on the table and act a little bored, send text messages to his girlfriend. Sometimes he would act a little bit jerky. Like he might say to the other members things like, have you ever even been in an MBA class before? Right? And what's so interesting with this research is that you see on team after team that even when the other MBA students are excellent, that those with nick on them perform at a 45% worse rate. So that's pretty significant. What's even more interesting is that we can see that those teams that had Nick on them, the other MBA students started to behave like him. So like when he acted bored, after 10 or 20 minutes, they all started to act bored also, saying things like, oh, when is this going to be over? Right? And when he acted jerky, the other people on the team would start acting jerky also, not just to him, but to one another. So this really proves the point that on a team, an individual performance problem is not an individual problem. It's a systemic problem. And if you let poor performers or even mediocre performers hang around, they will pull down the performance level of the entire team and organization. So that's really the premise that Netflix was built on. And they have this system at Netflix that they call the Keeper Test. And I know it sounds a little bit ominous, but I actually think all managers should be doing this, which is that every year or 6 months or so, a manager should ask themselves. You know, if Janet came to me and told me she was leaving my team, would I be devastated? Would I fight hard to keep her? And if you would, you know that Janet's the right person for that team. But if you'd feel a little bit relieved or maybe even excited about who you could get into that position, well, that's clearly something you need to think carefully about and perhaps replace Janet if you've given her feedback already and she hasn't managed to I think

I read you have said, you've written that really for a top performer, the greatest office asset they can have is to be surrounded by stunning colleagues. It's not about having coffee or a bigger office. It's about having better teammates.

Yeah, and that whole finding, which, which Reed talks about a lot, came from this experience that he had at Netflix in 2001. So when Netflix started out in 1997, Reed was going for high performance. But he also believed that a good company should feel like a family. And therefore, he should show a lot of loyalty to his employees and keep them around even if they weren't doing a great job. But then in 2001, there was this financial crisis. And he was forced to lay off a third of the workforce. And when he did that, he was really worried about what was going to happen to the company because his team was already really busy. So then, of course, the day of the layoffs came and people were really angry. The people who left cried and slammed doors. But very surprisingly, within a few months, that smaller group of 80 was now accomplishing even more than the group of 120 had been before. And what he realized is just as you said, that because the people he had kept on the team were the real high performers, that for them, it was being surrounded by high performers that made the job a joy. And he realized that there was this kind of like passion and enthusiasm around the office that he hadn't experienced before. And he made this commitment to himself, you know, in the future he was going to work hard to create these environments for his top performers where they were surrounded by stunning colleagues. And that was the whole start of this idea of the Keeper Test.

Yeah, and I think you see that in the military and other places where they talk about how important it is to be able to rely on the people to your left, the people to your right, and to find a way to create that atmosphere where you believe in, depend on the team you're with. And so I— that makes a lot of sense. I also want to talk about another principle or a key step in the idea of creating a culture of reinvention, and that is the idea of candid, maybe radical candid feedback.

Yeah, so that's the second principle, and this principle is really important because of course if you're going to give your employees a lot of freedom, the first thing that you want to do is make sure that you have the right employees to give the freedom to. But even so, if they don't feel like they're accountable to one another, you might find that they take advantage of the freedom that's given to them. But if you have an environment where people are really giving a lot of clear and candid feedback to one another, then you create this kind of environment of co-accountability. So if one person takes advantage of the freedom given to them, someone else will say, hey, you know, I don't think that's appropriate, right? And therefore you get kind of the team working together towards a higher performance. And I think that there's been a lot of talk, especially in the US lately, about how to get more candid feedback going. But what they've done that's unique or special at Netflix is they've really found these mechanisms for getting the feedback out there. That was one of the more interesting learnings for me.

So it's not just pop off every time you see something, but actually create a culture where feedback is understood, it's expected, it's just part of the way you do your job.

Yeah, and they also do things like they put feedback on the agenda. So that's very simple. But at Netflix, it's quite common that you might come into the office one morning and you open up your calendar and it says 10 o'clock, you know, feedback with Jane, right? And when you see that, you know that when Jane comes to your office, she's going to ask you if you have any feedback for her, and then she's going to give feedback to you, right? And of course, that's a critical kind of system, kind of method, because most of us do have feedback we could give to others that would be helpful, but we never really get around to it, right? When feedback is on the agenda, then that feedback starts getting out there. There's something else that I think is a lot more controversial. And I have to tell you, when I first heard about it, I thought it was absolutely crazy, which is that they do these 360-degree feedback dinners at Netflix. And the idea is that about once a year you would get together with your team, like over a meal, and during those couple of hours or several hours, you take turns, right? So like, I'd be up first, right? And when I'm up, we go around and everybody at the team, on the team, tells me one by one what they think I could do in order to improve my performance. And then we move on to the next person, right? And when I first heard this, I thought, oh my gosh, why would you do that? Why would you drag your weaknesses through the group? It's like this public shaming. But I came to see it was such a fantastic mechanism for helping everybody, you know, stop whispering behind one another's back and kind of get— getting all the feedback out there. And what I learned was that most Netflix employees felt that in a lot of ways, these moments were the best developmental moments of their lives.

Yeah, I think when it's expected, when it's understood, But it does become easier to accept. So in aviation, we often after a flight do the flight debrief. And this is true from the first flight lesson when you debrief with your instructor all the way up through the Thunderbirds and the Blue Angels. The top performers sit down after every flight and walk through what just happened, what did we learn, and they hold each other accountable. So while I think the idea of kind of radical or candid feedback is in some cases a little bit shocking to organizations that do annual performance reviews. The idea that you're going to constantly evaluate people and they're going to understand that that's appropriate, that does seem to make sense even in companies that have been around for a long time. Yeah,

and once you get the hang of it, you can start taking it to new extremes. I had this— because I think once you start with the systems and people start recognizing, as long as my feedback is meant to help, that the person I'm giving it to will appreciate that I've dared to give it to them.

So talent density, candid feedback, then the third The third step or the third principle, remove rules. Can you talk a little bit about that? Because I think most of us, we think more rules, more rules, and they build up, they add up, and at some point you kind of forget what was that rule even for.

That's right. Yeah. So let me start by saying that this is the cake of the Netflix system. And what I mean by that is the whole idea of adequate performance gets a generous severance and the keeper test. people love that and some people hate that. So that's like the spinach, right? The whole idea of giving a lot of candid feedback. Again, some people love that and some people hate it. That's like the squash, right? But the deal is that if you eat your spinach and you eat your squash, then you get to eat your cake. And everyone loves the cake, right? So once you have your talent density in place, you have those high-performing teams. Once you have a culture of candid feedback, creating this co-accountability, then you can remove the rules and process that are in place that guide your employees' actions and keep them from, let's say, doing their most innovative and flexible work. So at Netflix, there are 3 types of rules and process that exist at most organizations that they do not have. And the first are what we'll call policies. So, for example, at Netflix, the vacation policy is take some, right? The travel and expense policy is act in Netflix's best interest. And the maternity leave policy is do what's best for you and your baby, something like that, right? But those are really symbols. Those policies are really symbols of freedom. And when, of course, you give your employees symbols of freedom, that in turn elicits emotions and actions of responsibility in your workforce. More importantly, at Netflix, they also don't have things like key performance indicators or management by objective or pay-for-performance bonuses. Those are things, ways that we can give our employees, on the one hand, a little bit of freedom, but we also can keep our hands firmly on their shoulder and guide their actions. They don't have those at Netflix. They let their employees have more freedom to do what they think is best. And then the third, which I really think is the most important category of freedom, is no decision-making approvals. And I think the best image of this is to consider the pyramid versus the tree. So at almost all organizations, decision-making is like a pyramid. You've got the CEO at the top, and then you have your lower-level employees that are kind of at the bottom of the pyramid. And of course, the lower-level employees, they can make inexpensive, unimportant decisions. But for the more expensive, important decisions, they have to be pushed up the pyramid for approval. And that reduces risk and makes sure that we don't make too many mistakes. But at Netflix, they say lead with context, not control. And with this image, we have this tree where the chairman is like down at the roots, like at the earth of the tree. And he's the one or she's the one who's setting all of the context, talking about where our North Star is, what conditions we're working towards, what our strategies and goals are. And then you have the senior vice presidents who are like at the those big trunks setting more context for, for their departments. But it's the lower-level managers who are the small branches at the outside of the tree that are making the critical, sometimes very expensive, important decisions, keeping in mind all of the context that was set for them and not needing to get approval from others. And that's where we get this real flexibility and speed that we seen at Netflix and can be replicated at other organizations if we get the conditions right.

Yeah, so let me talk with you a little bit about that because I think for a lot of people if they hear just do the right thing or what does that mean? They say there's no vacation policy, but does the culture allow any vacation at all? What are the unwritten rules in this no rules culture?

Yeah, well, that's where the whole idea of lead with context, not control becomes so important. And I think we could just take that simple idea of a vacation policy. I know there's a lot of concerns if you don't have a vacation policy, what's that going to mean? Either people aren't going to take any vacation or they're going to be on vacation all the time. But what I actually found is that at Netflix, people take about as much vacation as they take at other companies. And that's because they look around them for the soft guidelines. What's my boss doing? What are my colleagues doing? And then based on what they're doing, I see what's appropriate for me. And of course, then a boss who's leading with context, not control, is saying to the staff, you know, I want you to take a good amount of vacation, and these are the things I want you to shoot for, and these are your responsibilities in the office. Reed tries to take 6 weeks of vacation every year in order to demonstrate for his own employees, you know, the importance of taking that time off. And I do think if the CEO and the rest of the senior team doesn't do that, that having no vacation policy will mean simply that no one takes any vacation. So leadership becomes more important, not less.

Yeah, so there's some leadership by example. So in terms of And I think in terms of creating the context, laying the ground and the trunk, a lot of that is by example as well.

Yeah, it's by example, and it also means that we're thinking carefully about what our employees, what information our employees need in order to make good decisions without telling them what they can and can't do. I mean, we see that at Netflix with people making like big decisions about television shows and movies that they're purchasing. They know, like there was this one guy who's working in India, right? And he wants to know, you know, should I purchase the show Mighty Little Bean, right? Which ended up being this wildly successful Indian animation. And he thinks about what he heard from Reed, which was let's grow big, specifically looking at India and Brazil. And then he thinks about what he heard from Ted, which is that when we're working in countries like India and Brazil, let's take big risks. if we know we're going to learn things. And then he thinks about what he learned from his boss and from the boss underneath and the boss underneath. And then with all of that information, he can make the best decision for the organization. So the system is totally turned upside down, but that doesn't mean that individuals are making decisions in a vacuum. On the contrary, it means you have to have a lot of organizational

People are watching this, they're fascinated by it, they see an amazing example in Netflix, but if you're not the CEO, if you're not the head of HR, if you are working as part of a team, are there ways to kind of introduce this idea that with more freedom can be more accountability, more responsibility, better results?

Oh, absolutely. Absolutely. Even if you're just a team leader, you've got 4 people working for you, you can apply these things. The first thing you need to ask yourself is, what am I going for? Am I going to reduce error and create super safe? Is that my goal? Or on this team, are we looking for innovation and flexibility? OK. Once you've determined that, if you've decided on this specific team, you know, our main goals are innovation and flexibility, then you can just walk through, you know, am I doing what I need to get my highest performers I can on this team? Am I really trying to hire the best? Am I paying top of market? Am I using the keeper test to make sure that I weed out any non-desirable employees? Once I've got that in place, then I can start getting this candor going, right? Working as a team to think about how to give more feedback. And then I can start thinking, you know, okay, maybe I can't say no vacation policy because we have a vacation policy across the organization. But I certainly can adapt my own leadership style to give my employees a lot more freedom in order to take advantage of their talents and to create a more flexible, innovative environment.

Yeah, and it seems to me, you know, we talk about great cultures and the one that always gets brought up is NASA during the time we were going to the moon and there was a lot of talk about how if you stopped a janitor at NASA and said, what's your job? The response would be, I'm helping get someone to the moon. And I think that is— culture does permeate an organization. I think if you're not at the top, though, you can take a proactive step by asking why. What do we value? What are the decisions based on? Don't just give me what I need to do, but tell me why I'm

Yeah, and if we're going to be doing that, I think I'd like to move on to another really interesting lesson that I learned from Netflix that I now I'm teaching in all of my classes, which is that when you have discussions with your team about the values that you want to have on your team, about the culture that you want to have on your team, don't focus on absolute positives like we believe in integrity. or we believe in respect. Because I mean, those things, they easily just turn into like kind of blah, blah, blah, right? Dreams, aspirational dreams. Instead, think about the really tough decisions that your employees have to make on a daily basis and tell them which way to turn. So for example, if I'm in a situation where I need to decide whether to fire or a mediocre employee? Should I keep that person on the team in order to create a family environment, or should I move that person off in order to create a high-performing environment? These are the real tough dilemmas we need to think about. And I think if we're constantly debating those kind of tough dilemmas, that we can create a real culture in our team and organization that takes root and isn't just

Erin, you've been great to be with us today. Again, the book is No Rules Rules: Netflix and the Culture of Reinvention. It's already a bestseller. It's been nominated for Business Book of the Year, and it's a lot of food for thought because right now we are finding ourselves in a time when reinvention is It is absolutely a necessity, and I think you've given us a lot of key principles that we can all think about as we go forward and negotiate through COVID and hopefully position ourselves not just to survive this crisis, but to thrive as we move forward into what we hope will be a great 2021. So, Erin, thank you so much for being with us today. We'll look forward to continuing to follow Netflix and your book, and hopefully have you back at future NBAA events.

Nice to be here. Thank you, Ed.

All right. Well, thank you all for joining us today for the day 2 keynote session of VBASE. I hope you have had an interesting couple of days visiting exhibitors, attending education sessions, and being part of the VBASE experience. NBAA is working hard to connect people in our industry, including buyers and sellers, and create a community that we can all take personal responsibility for and expand our personal relationships. Thank you for being with us today and have a great rest of VBASE.