Secrets of Success from the Founder of Netflix – No Rules Rules by Reed Hastings Book Summary

I admire Netflix. It’s managed to innovate and stay relevant in a world that’s constantly changing. Regardless of how people complain about the quality of shows, I’ve seen how it’s pivoted when others didn’t. I was around when Blockbuster ruled; most people (richer people actually) rented moved. Netflix shipped DVDs for you to rent through the mail. When that started to die, it shifted to streaming. And now, it’s innovated again with its willingness to explore Netflix Originals.

So, let’s learn about this incredible company and how it’s succeeded. Here’s my book summary notes of the founder’s book.

• Netflix went from a  startup that got rejected by multi billion dollar company Blockbuster for a $50 million proposed acquisition. But how the tables have turned over the years. Blockbuster is now bankrupt and gone, and Netflix has won many film and TV awards with its original series.
• Reed Hastings is often asked why Netflix succeeded when Blockbuster failed. He believes it comes down to having a culture that cared about high-quality people rather than processes, innovation over efficiency, and culture with few controls.
• Reed learned through trial and error and previous failed businesses that adding a bunch of rules wasn’t always the best way to do things. Many companies have failed in the past because they have been able to adapt to a shift in the industry. While rules can increase efficiency, they decrease innovation. It’s better to give your employees the freedom as long as you build a company filled with only high performers.
• Reed didn’t like that Blockbuster’s business model depended on people feeling bad because they returned their DVDs too late and had to pay a large late fee. He thought it was better to build a business model that didn’t depend on negative emotions. (*Interesting idea. Businesses I admire are often built around joy/positivity – Apple has good products, YouTube delivers great content … Some businesses make you feel bad even though you’re paying and are they going to succeed long term?)
• You need innovation to keep up with rapidly changing times. Many giant companies have failed to do so, such as Blockbuster, Kodak, and Toys “R” Us, forcing them to go out of business. Rigid rules and policies stifle innovation.
• Have a high talent density. One or two adequate employees will lower the overall performance of everyone else by reducing the quality of conversations, sap management time, and more.
• Reduce the amount of rules. When you give employees more freedom, they make better decisions.
• Reed communicated poorly with employees and his spouse initially. He feared confrontation, so he avoided it to his detriment. Instead of telling one of his employees that he wasn’t satisfied with the speed of his work, he hired another firm to do the job behind his employees back. Looking back, it was a bad move. Reed also had issues with his spouse who cared more about that he wasn’t spending time together than his business success. This caused resentment from him and unhappiness from her. It was through marriage counseling that he started to learn how to communicate better and see things from other’s perspectives.
• The brain’s animalistic response from receiving criticism or feedback in a group setting is to flee because the brain is always scared of group rejection, which led to isolation in ancestral times. Yet corrected feedback is shown in service to be three times as useful than positive feedback and usually more desired.
• Radical candor plus excellent performance equals even exceptional performance.
  • The feedback loop is very useful for organizations. It reduces hierarchy and allows for improvement. Research done on signs that display your speed while driving cause a noticeable decrease in peoples driving speed. The simple feedback loop works.
  • Your first focus should be to encourage employee to manager feedback to avoid the emperor has no clothes situations. Add to the agenda and show cues that they belong and gratitude such as thanking them, looking positively, a positive tone, moving closer, or praising their candor to a team to show that their candor doesn’t put their job or relationship in danger.
• Netflix has a culture that encourages someone who is four levels down in hierarchy to voice their opinions and dispute another’s thoughts. This would be career suicide in other companies. I also noted that this building is different from leading that person get away with his ideas. If you disagree, both parties still  debated fervently to decide the best strategy.
• Netflix’s radical candor rules aren’t a no holds bar, no consequences say whatever you want.
  • Can only speak with candor when you have some thing of positive feedback to give. You can’t say it to air out your frustrations, further your political agenda, or to intentionally hurt the other person.
  • It has to be actionable
  • Appreciate feedback
  • Saying that someone can’t pick their teeth in meetings is wrong. But saying that they appear less professional and can appear more professional by not picking their teeth is better
• Once you have a culture of candor, you can and should give feedback whenever and wherever it is most helpful, whether that is in front of many other people or alone in private.
• Draw a clear distinction between the person giving selfless feedback and the brilliant jerk. The jerk, well effective at work, gives feedback in unconstructive or blunt, demotivating ways. One example given of how to give feedback is when one manager asked another word questions how he came across to someone else. Rather than straight up accusing that person of being a jerk, he asked questions, which is much more constructive. If he had criticized by accusing, the person would’ve denied it. Instead, he informed the person that his comments had caused the employee to be demotivated, asked him if hus intent was to be constructive for the company, and then asked if there was a way for him to deliver his comments in a more constructive way in the future.
• To avoid giving feedback out of frustration, always use a calm voice and never give feedback while angry.
• In the information age, you should measure people by the value they contribute, not how hard they work (how many hours they put in per week). If one person works 70 hours a week but doesn’t impact the company as much as someone who is contributing massive value who works five hours a week in a hammock in Hawaii, he would give a promotion to the one in the hammock. You never tracks how much work an employee does. He measures and rewards employees by their impact on the company.
• Up until 2013, Netflix followed the pack and tracked vacation time. But then, and employee asked why they track vacation time if they don’t track hours worked? Reed didn’t have a good answer. It didn’t matter to him if an employee worked 52  weeks a year or 48 since that was just a 4% difference.
• Netflix tested out a unlimited vacation policy. At first, he was scared that everyone would take vacation at the same time which would cripple the company or everyone would be too scared to take any vacation. The policy works well and allows for a lot of flexibility and employee satisfaction but there are a few things that must be done for it to work right. First, the leaders set the precedence if the leader only takes two weeks of vacation a year, the subordinates may see that and be too scared to take extra vacation time and feel resentful as if they don’t have enough vacation time. In the absence of policy, people base how much vacation they take by how much they’re call leagues and bosses take. Get your leaders to take significant amounts of vacation and talk a lot about it.
• Read takes at least six weeks of vacation to travel all over the world for fun and you make sure to talk about it to anyone who will listen. The policy won’t work unless employees see the CEO and other leaders take vacation. Employees will look to their boss and modeled their behavior. They don’t want to feel like they’re not pulling as much weight. If the boss tells you that they want you to have a work life balance but they themselves work 10 or more hours a day, the employees will mimic that.
• Employees tend to take about the same amount of vacation they did before then no vacation policy was implemented. Thanks to the radical candor
• Netflix has a travel and accommodation policy that gives employees a level of freedom to purchase what they think is necessary as long as they believe it’s a rational purchase they can explain the expense to their boss. The Finance department acts as a check and balance by reviewing reimbursements. Sometimes, they catch stuff that isn’t okay that they have to deal with, like one time someone purchased a $400 bottle of wine.
• Recruiters are the best way to get accurate market data on what your job is worth to the market since they’re constantly getting that data and trying to find new talent. It will be useful to you to stay connected with recruiters and keep tabs on that data.
  It’s the employees responsibility to keep tabs on what they’re worth in the market and ask to be paid that amount. Why would an employer voluntarily do the work for them and give them a raise if they don’t ask? Netflix is the exception to the rule with its unique stance on paying top level talent is the highest level of its market value. Netflix does this to prevent poaching since the rarity of that talent is makes it them hard to come by.
• Reed wants Netflix employees to do the research and talk to recruiters because he wants people to stay at Netflix because they choose to, not because they are forced to. He doesn’t want Netflix to be the only option. If you’re good enough to work at Netflix, there will be other options. He wants people to be happy with their choice.
• Most companies will treat their employees as traders if they find out that they’ve been interviewing or talking to recruiters about another job. However, Netflix encourages employees to take those calls and find out if they’re willing to pay more. If they are, Netflix wants them to notify the company about how much so they can match that salary. This strategy helps prevent top talent from leaving Netflix, which happened more frequently before this strategy was introduced. It’s much better to give these raises before they hear the job offers. This method of encouraging open communication gives Netflix the opportunity to retain talent by matching increases in market rate before an employee says yes to another offer because Netflix usually can match the increase in market rate but can’t do it if they’ve already excepted the offer. Plus, a certain portion of employees are going to take those recruiting calls anyways because they’re curious, so might as well be encouraged to speak openly about it and share salary data than to have them sneak around.
• Netflix wants to encouraging environment where there is a certain level of transparency and sharing of information rather than keeping secrets. Part of that means making sure there were no accidental or intended signs that secrets are being kept. Having a secretary guard your office can make it seem that you are holding secrets or guarding something you don’t want others to know about. That’s why Reed doesn’t have an office. He has walking meetings with people and books a room in other peoples offices everyday.
• Senior employees stunts the productivity of the workforce by keeping financial and strategic information hidden from your lower employees. By sharing that information, they get more done and they don’t have to stop to ask for permission or info. Everyone at Netflix gets access to extremely sensitive, useful information that competitors would love to get their hands on. They are told of the dangers and consequences of sharing this outside to org and told not to and given the trust. Reed would rather do that and be transparent than hide stuff from lower levels even if it is “safer.”
• Netflix is all about complete transparency since most of corporate America spins or hides the facts to make others look good or for their safety. Netflix makes their daily subscriber data available to all employees that want it. this daily data could be very dangerous since an employee could use it illegally to profit through insider trading. The share data makes clear that you can go to jail if you use it illegally.
• Reed believes in dealing with individual mistakes rather than punishing the majority. He believes at some point in the future, someone May end up using that data illegally and he will deal with that person as an individual rather than eliminating his entire company policy or having it affect the other employees.
• This inclination to hide the truth or keep things less transparent can come out in many ways in most other corporations. For example, when an employee is fired and asked, he or she may ask to not reveal He or she was fired and the details of why and instead say that he or she left on his or her own accord to see your face. However, at Netflix, the policy is clear transparency. Determination is announced Andy’s details as to why that decision was made was shared with the company.
  • Well I’m not as in agreement to the shoe level of transparency in other realms around sharing your financial data since it’s so tempting and likely an employee will use that in a bad way, this is one area that I do wish many more companies would follow. I’ve seen firsthand organizations who will diminish or delete all the details of a persons termination until all that’s left is that a person has left the organization. It makes me confused, devastated, and lost as to why since these are people that I know personally and I will wish you well even if I might agree that they did something worth termination if I saw the details. I don’t think it’s intentional that corporations are not doing this. Likely, they have some good intentions. They don’t want the person terminated to lose face and do you have an essence is where I did learn more I’ll bit more about what happen when I asked one on one with someone who knew more. Really, I think corporations are just not sure what the right, best approach is and they feel that reducing transparency would be the more cordis option. But maybe that’s not true maybe it is.
• Leaders should shout about their mistakes, not literally, but be very open and transparent about them. Doing so builds trust, encourages courage, and promote others to be more vulnerable about their own mistakes. Netflix has seen success from having their leaders share openly about what they did wrong, which cause others to share what they did wrong and/or admire and respect the leader more. This idea was inspired by how open Steve Ballmer of Microsoft was about his mistakes.
  • As a caveat, a leader should probably  become  respected and prove his skills and credibility first before constantly talking about mistakes.
  • Reed is very open and loud about his mistakes to his employees.
• Give employees the autonomy to make their own decisions. A great CEO shouldn’t have to make decisions because they’ve allowed their subordinates to make decisions for them. Cheryl Sandberg shadow to read for a day and she said the things she was most amazed about was the fact that he didn’t make a single decision the whole day. Giving others the ability to make big decisions is foreign to most businesses but it works on Netflix because people get the autonomy they need to succeed without relying on someone above to ok something first.
• Netflix believes in fostering dissent with an idea. Even if in upper management fervently disagrees with an idea, they allow those in charge of the idea to make the final decision even if they’re lower down. At one point, Netflix had no brand presents in Mexico, and the woman in charge had a big social media plan To vote for and create local Mexican movies using social media influencer marketing. Upper management fervently disagreed with the idea because of a failure in Brazil that used social media and film festivals. But Director of this campaign fervently argued for it despite dissent and it turned out to be a massive success.
• Netflix’s philosophy of seeking dissent before trying an idea came from their first big failure which was to split their service in to two different companies, one for physical products under the name Quickster and the other for their new streaming services. Millions of customers voiced their outrage and unsubscribed because it was too expensive and too much hassle to manage two different services. After the failure, many of the higher level managers came out to say that they never thought the idea would succeed but they didn’t want to voice their opinion because he’s not the boss was so headstrong about the idea or everyone else seemed on board. It turns out that people tend to follow the crowd and they don’t want to upset the boss. Therefore, Netflix is new philosophy of fostering social dissent to get a accurate temperature about an idea aims to prevent that from happening again.
  • Reed also suggests getting out a simple spreadsheet and tabulating how much each person at the meeting agrees or disagrees with an idea with a plus or minus and the number. This isn’t meant to be a democracy does so you’re not supposed to add up and get an average of all the numbers. It’s simply meant to reveal important information.
  • I found this philosophy and other themes, such as radical candor, he really similar to Ray Dalio’s recent book on his organization as a business culture. The difference is that Ray’s system suggest that you do tabulate up all the numbers and that you wait them appropriately depending on the credibility of each person.
  • Reed has been wrong about many strategy decisions, but fortunately Netflix is culture has allowed his subordinates who are right about the strategy and disagreed with read to allow Netflix to succeed. At one point, he didn’t believe that there should be any investment in children she always because it was the adults who would always be the ones interested in buying shows for themselves. Fortunately, his subordinates disagreed and they went through with a strong investment into children shops, which fostered a lot of success and many adults who ended up purchasing Netflix purely for the children shows and safer environment than YouTube for their children.
• Netflix is big differentiator, which makes it so innovative is the freedom it gives its employees to make big decisions. If your employees are good, you should let them make their own decisions.
• It’s critical to demonstrate how you respond when an employee‘s project succeeds or fails because everyone is looking. If it succeeds, make it clear that you were praising him or her and make it clear that you were admitting that you were wrong and they were right. If it fails, your response is even more critical. Ask them what earnings came from the project, don’t make a big deal about it, and ask him or her to sunshine the project.
• Netflix is culture in policy encourages disagreement. In fact, you are seen as disloyal to the company if you have a disagreement but do not express it.
• By allowing employees to sign off on their own projects and decide on the budget themselves rather than rely on higher up signing, Netflix instills a level of freedom and responsibility on employees. They feel responsible for the success or failure of the project whereas before, they didn’t feel like it was their fault or they didn’t put as much weight into the project since various other managers had to sign off. some people really like this approach. Others feel like it is too much pressure. If they can adjust, they stay with Netflix. If not, define an organization better suited to them.
• Reed suggests not making any failures a big deal by asking them what learnings came from and then asking them to Sunset the failure. By making it a big deal or appearing out raged afterwards or parading the failure to the organization or coworkers, it conveys that the manager is preaching dispersed decision making and more risk taking but not practicing it. One time, a newer executive spent an entire year working with his team to create a better Netflix experience on gaming consuls. Unfortunately, the end result was people using less Netflix rather than more. Reed demonstrated his philosophy by simply asking what was learned from the experience and how they could move forward. The big learning was that engagement goes down when complexity goes up, which they have used throughout  the organization and remembered.
• Another example features a marketing manager called Yasmin who decided to send direct messages in mass to hundreds of thousands of people in Turkey to promote season four of black mirror with a cryptic creepy message, saying that “I know what you’re up to“ from a user name of Waldo, to reference a black mirror character. The campaign failed horrendously and media card on quickly, labeling it as creepy and intrusive. But Netflix does a fire on mistakes like this. They don’t fire you for taking big risks. They fire you for not taking big risks or not explaining what you learned. she learned that she should’ve socialize the idea rather than launch it herself without any back-and-forth with her team. The campaign became a favorite of the campaigns that Netflix brings up to new recruits to teach them about lessons learned. Yasmin went on to be promoted to a Director leader in her career and has done well at Netflix.
• Netflix try to treat employees like family for many years until they found a better analogy. What’s a good metaphor to describe a high density talent pool? They settled on sports team because they didn’t want employees to think that they had to remain with the company for the rest of their life like a family. Pro athletes on the team demand excellence and may be traded to another team when the situation calls for that person to use their best talents elsewhere if that’s a better fit for the organization and the player. I sports team six to fill every position with the best possible talent at any given time.
• Netflix looks for star players, not average players. Adequate performance leads to a severance package. Managers use a keeper test. Would keeping or letting go the employee make the organization better or worse? If that employee went to a comparable company for a similar job title, would you fight hard to keep that employee? It’s not unusual for and employee to be doing fine at work and then all the sun end up unemployed. Like a sports team, the owners are constantly looking to find The best performer for a certain role and they may let you go if they feel your performance wise and up to expectations.
• In the past, employees would rally around under performing employees and support them, not even thinking about firing them because they were a family. It seems there was a shift in the culture when Reed believed that it was necessary to let go of people quickly who are not performing at a star level. The philosophy goals that if you are compensated at a superstar level, you are expected to deliver a superstar performance. Part of that salary demands excepting that risk of getting fired. While some might think of the approach as somewhat cutthroat, Reed argues that many of his high performing employees prefer that approach and deliver. As you mentioned before, adequate performance get a generous severance. If you get let go, you get up to several months of pay to help you find a new job.
• Netflix does not agree with the rank and yank tactics of Microsoft and Jack Welch’s general electric, which call for you to let go of your bottom 10% of talent every year and rent every individual employee frequently. Reed believes that the change you get from maintaining a high talent density with this approach or lost by the internal competitiveness that it insights. Employees start to withhold information rather than collaborate to prevent from being fired or being ranked lower. The keeper test is enough to do the same without any of the losses. One key difference between Netflix and a sports team though is that there is no fixed slots that can be filled. As the organization succeeds, more job openings will occur to welcome more awesome talent. It is not a zero-sum game for employees. Netflix wants employees to work together and collaborate and compete against other competitors, not themselves. Microsoft and General Electric have recently stopped using this ranking tactic. However, I have seen a recent interview with Jack Welch that still has him encouraging the use of it and saying it’s even more important for small businesses. It’s very illuminating because it just goes to show you that there are multiple ways to the success of an organization and you don’t have to blindly follow just one person‘s advice and assume that’s the only way to success and trust that it is the best way.
• People who are let go should be told frequently beforehand what they need to improve because of Netflix is radical candor policy. They’re giving a lot of transparent feedback so the firing shouldn’t come as a surprise.
• The book highlights a couple Netflix employees who were scared to death that they would be fired as they came into the office every day. They keep her test and other employees that had been fired recently were often topics of conversation amongst employees. Reed suggests using the key protest on your manager to get a realistic sense of where you stand, and he says it’s almost always a good way to alleviate anxiety. If you ask your manager, “If I were to leave for another organization today, how hard would you fight to keep me?” And depending on the enthusiasm of the response, you either feel more comfortable or you know where you stand and where you need to improve. The manager will likely mention stuff that needs to be improved. Some employees ask this keeper test every year to make sure they know where they stand. Read Hastings argues hear that no matter what response you get, you get a clear action step for what you need to do or what you don’t have to do. You are either reassured or you know how you need to improve. I think this approach helps, but I don’t know if it solves all problems. What if you try your absolute best and you are still unable to patch the areas of improvement? I suppose in this culture and organization of high performers only, will just lead to you being let go since they only one high performers. But it does leave me worried for the rest of the world since not every company can adopt this approach since some people are just average or moderately above average performers and that’s the best they can do. It may insights a feeling of constant fear and imposter syndrome that can’t  be fixed.
• Netflix has a higher rate of termination then the industry average but also a higher rate of employees voluntarily choosing to stay, which adds up to be equal to the industry average.
• Candor is like the dentist, people will try to avoid it if possible. Hence, there are a few tactics you can employ to encourage candor. One is to don’t say anything behind someone’s back that you want to say to their face. This reduces office politics. And gossip. Netflix doesn’t believe in performance reviews because it goes against the don’t try to please your boss philosophy and the feedback is only one way.
• You can either lead by context or by control. Leading bike control is like monitoring every little thing your child does and making sure you give approval or rejected by screening everyone and everything when your child wants to go to a party or hang out with friends. Leading by contacts is going through and educating your child on the consequences of alcohol and drugs Thorley and then letting him or her make decisions.
  • The best way to lead is depending on the situation. It’s a case by case basis. Certain industries that have a life or death risks, like the oil industry or healthcare, should lead with control because of these devastating risks. Other situations may be better left lead by context.
• Reed made sure to add diverse talent to his workforce because the diversity represented all the different type of people that were watching Netflix around the world. He made a point to better understand the cultural differences because there are certain perspectives or nuances that can easily be missed by foreigner. He tells the story of how he taught in rural Swasiland only to discover that none of his students could answer a math question on a test that should’ve been easy because none of them knew what a tile was. He had used a term that doesnt exist in their land since there were no tiles on floors, just dirt or concrete.
• When Netflix acquires or makes contact, they strive to create something with the standard that is the highest, even in the countries where there is a high critique and standard. When they make anime, they want it to be revered even in anime loving Japan. This ultimately lead to them spending the most anyone has ever spent in India to create a world class animation for the Indian audience. Netflix prefers animation over live action because what a character sees with the mouse can be sent to different languages. There’s always a separation, whether people will admit it or not, when they see the live action or animation and the language the characters speaking doesn’t sync to the mouth movements.
• Many Netflix employees in different countries had trouble adapting to Netflix is radical candor because their culture conditions them to behave otherwise. While some cultures, like  Germany and the Netherlands, have a more blunt approach that may be interpreted as harsh, other countries have a much more implicit style where criticism is obscured or reduced in public settings. It is important to be aware of the vast differences in culture around the world.
• After a while, Netflix found some best practices that worked for improving radical candor culture in other countries. Have more frequent formal feedback meetings. These feedback meetings provide a formal part of the job that allows even people in more indirect cultures to step up to what their job entitles. That way they dont have to rely on informal events for feedback.
• It turns out that there are significant cultural differences that forces Netflix to adapt to other cultures we have communication and vice versa. An example is shared in the book of a message sent to an employee on the Singapore team that was interpreted as very rude and blunt. Well in America, the message would have simply been seen as honest, not blaming, and focused on getting the work done, the Singaporean team was poured in the majority of them said that in their culture, it came off rude. Instead, the American who sent the message learned that she had to come off softer, in a number of possible ways, including starting off by saying that the person is not to blame, apologizing for sending a message in the middle of the night Singaporean time, adding an emoji, or starting with something more personal and softer as the start of the conversation. The Netflix team has learned that when dealing with employees from countries that are less direct, it’s important to be friendlier, add a relational touch with something like an emoji, reduce the blame, and be less aggressive with criticism.
• Everything is relative, so the book gave an example on the other end of the spectrum with the Dutch Netflix team, who has a culture that takes and gives feedback that’s more direct than Americans. The Dutch team ultimately figure out that they have to be more careful when giving feedback to international coworkers sense just saying negative feedback can give the false impression to Americans that the entire meeting went horribly and that it was a horrible perception. In reality, we need Dutch person give negative feedback, that doesn’t mean that they thought the meeting went negatively or that you didn’t accomplish anything positive. They could still have positive thoughts about the success or achievements, they just chose the spoke about just the negative. Therefore, the Dutch team realize that they had to do a process of making sure to give positive feedback as well so that the people receiving it wouldn’t feel like it went horribly or that their jobs are on the line when that wasn’t true.
• Here is the four a approach to feedback you should always use: aim to assist, actionable, appreciate, accept or decline. When speaking to people of different cultures, you must add a fifth a. And that is to adapt your feedback to the culture you’re speaking to.

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