Book Summaries

Book cover of No Rules Rules

No Rules Rules: Netflix and the Culture of Reinvention

Erin Meyer and Reed Hastings

Netflix has defied tradition for decades with a rich culture unlike any other. This book focuses on how to lead a company with freedom and responsibility, while inspiring trust and creativity from top to bottom. Drawing criticism in the media for departing from typical business practices, Erin Meyer, a professor and author, interviewed over 200 employees globally to understand Netflix. How does a company with a culture unlike any other consistently deliver such remarkable results? Co-authored by Netflix CEO Reed Hastings, No Rules Rules explores the ideologies of Netflix and the philosophy behind one of the world’s most iconic companies.

Talent Density: A Great Workplace is Stunning Colleagues

  • When employees perform well, performance trends upward. Good work motivates greater work.
  • Professor Will Felps conducted a study about contagious behavior in the work environment and found that “one individual’s bad behavior brought down the effectiveness of the entire team” (p. 12).
  • “If you have a group with a few merely adequate performers, that performance is likely to spread, bringing down the performance of the entire organization” (p. 13).
  • Netflix understands that talent density improves performance and coaches managers to have the courage to get rid of any employee who is not performing at an exemplary level (p. 15).
  • Stunning colleagues is the foundation of any successful workplace, and the goal of any leader is to develop a work environment consisting exclusively of stunning colleagues.

Then Increase Candor: Say What You Really Think (With Positive Intent)

  • “I began encouraging everyone to say exactly what they really thought, but with positive intent—not to attack or injure anyone, but to get feelings, opinions, and feedback out onto the table, where they could be dealt with” (p. 21). Netflix lives by the mantra of only saying things about someone that you would say to their face (p. 23). They understand why it may be difficult to speak up in the workplace but began their culture of candor at the top. “When employees begin providing truthful feedback to their leaders, the big benefits of candor really take off” (p. 35).
  • Positive feedback stimulates your brain to release feel-good hormones (p. 32). Consulting firm Zenger Folkman collected data on feedback from over 1,000 people and found “92 percent agreed with the comment, ‘Negative feedback, if delivered appropriately, improves performance”’ (p. 33).
  • But candor is not enough if the leader is not open to the feedback. The leader must provide “belonging cues” when hearing feedback.
  • Netflix managers spend time coaching employees on how to give feedback. They advise that when giving feedback, aim to assist and make the feedback actionable (p. 45). When receiving feedback, appreciate the insight, then accept or discard the message as warranted (p. 46). Managers also must clarify and reinforce the difference between being selflessly candid and acting like a jerk (p. 51). Now, with coaching on feedback in place, the boss is no longer the primary individual to correct an employee’s behavior or actions (p. 57).

Begin Removing Controls: Remove Vacation Policy

  • Netflix experimented with removing written vacation policies and the need to ask for time off. “Today, in the information age, what matters is what you achieve, not how many hours you clock” (p. 59). This shift was made after an employee suggested the idea. The policy works so long as the managers spend time discussing what behaviors fall within the realm of acceptable and appropriate (p. 74).
  • Leaders must demonstrate the policy in action to influence the behavior of all other employees. “Most important, the freedom signals to employees that we trust them to do the right thing” (p. 63).
  • “Giving employees more freedom led them to take more ownership and behave more responsibly” (p. 80).

Continue Removing Controls: Remove Travel and Expense Approvals

  • Do not waste time on expenses. Encourage employees to spend company money like it’s their own. Act in Netflix’s best interest as you do so. “Real life is so much more nuanced than any policy could ever address” (p. 85).
  • Set the context upfront for what is appropriate. “Employees have a lot of freedom to decide for themselves how to spend company money, but it’s clearly not a free-for-all” (p. 89).
  • The biggest expense from this freedom “is probably the number of people choosing to fly business class” (p. 96). The freedom and lack of process is more efficient for Netflix.
  • “But this is the most important message of this chapter: even if your employees spend a little more when you give them freedom, the cost is still less than having a workplace where they can’t fly” (p. 97).

Fortify Talent Density: Pay Top of Market

  • “The success of Netflix is founded on these types of unlikely stories: small teams consisting exclusively of significantly above-average performers—what Reed refers to as dream teams—working on big, hairy problems” (p. 115). Netflix follows the “rock-star principle” where you hire one rock-star employee and pay significantly more than what you would pay a team of 5 non-rock-stars (p. 117).
  • There are few operational jobs at Netflix as the talent is focused on creativity. Break the mold of hiring multiple employees and make a lean workforce. As you do so, eliminate bonuses—they are bad for flexibility and can diminish performance. “High performers naturally want to succeed and will devote all resources toward doing so whether they have a bonus hanging in front of their noses or not” (p. 125).
  • A Dan Ariely study from 2008 found that creative work requires that your mind feel a level of freedom (p. 126). Contingent pay and bonuses work for routine tasks but decrease performance for creative work.   
  • Always pay top of the market salary and conduct thorough searches to ensure your offer is at the top. “We told all managers that they shouldn’t wait for their people to come to them with a competitor’s offer before raising salaries. If we didn’t want to lose an employee and saw her market value rising, we should increase her pay accordingly” (p. 146).

Pump Up Candor: Open the Books

  • Organizational transparency is paramount. Leaders must live the message of transparency by sharing as much as possible with everybody (p. 159). “The trust we demonstrate in them in turn generates feelings of ownership, commitment, and responsibility” (p. 167).
  • “In general…we try to open up the process as early as possible, to create buy-in, and to help people see that, although things will always be changing, at least they will be kept informed” (p. 177).
  • Leader must practice humility. “Whisper wins and shout mistakes” (p. 186).
  • For ultimate transparency, think of symbolic messages, too. Open the financial books to your employees in addition to decisions. Talk openly about your mistakes if you have shown yourself as competent.

Now Release More Controls: No Decision-Making Approvals Needed

  • Netflix practices a dispersed decision-making model so employees never act to only please their boss.
  • This model only works with high talent density and extreme organizational transparency. “Our dispersed decision-making model has become a foundation of our culture and one of the main reasons we have grown and innovated so quickly” (p. 195).
  • “People desire and thrive in jobs that give them control over their own decisions…The more people are given control over their own projects, the more ownership they feel, and the more motivated they are to do their best work” (p. 199).
  • Take bets that you believe in. Netflix encourages all employees to take bets even when the boss or others think the ideas are dumb (p. 207).
  • Big-ticket decisions should be dispersed across the workforce. Encourage dissent when innovating, socialize the idea, then test out the bet. When bets fail, talk openly about, or “sunshine,” it (p. 241).

Max Up Talent Density: The Keeper Test

  • The Keeper Test: “If a person on your team were to quit tomorrow, would you try to change their mind? Or would you accept their resignation, perhaps with a little relief? If the latter, you should give them a severance package now, and look for a star, someone you would fight to keep” (p. 254).
    Use this test to ensure that the critical elements of talent density, candor, and freedom persist despite change and growth. Netflix is not a “family.” It is a professional sports team.
  • “If you’re serious about talent density, you have to get in the habit of doing something a lot harder: firing a good employee when you think you can get a great one…a high-talent density work environment is not a family” (pp. 246-247). Despite the culture of firing and hiring the best, Netflix’s annual turnover rate is around the average in the field of technology (p. 275).
  • Give a generous severance for those fired and speak openly about why someone left.

Max Up Candor: A Circle of Feedback

  • Netflix aims to keep candor high with a few tactics. They do not use performance reviews, as the feedback goes downward and is normally from one source (boss). Historically, performance reviews are based on annual goals which does not apply to Netflix and their culture of creativity.
  • “Candor is like going to the dentist. Even if you encourage everyone to brush daily, some won’t do it” (p. 281). Implement candor sessions once every six months just like dentist appointments.
  • Netflix encourages everyone to give feedback to any colleague. They use two processes:
    • State your name: A different kind of written 360. This reinforces a culture of transparency. Eliminate anonymous feedback.
    • Live 360: Meet outside the office and receive feedback in person.
  • Netflix leaders share comments and 360 reports companywide (p. 287).
  • “That’s exactly why you as the leader need to share your 360 evaluations with your teams, especially the really candid stuff about all the things you do poorly. It shows everyone that giving and receiving clear, actionable feedback isn’t so scary” (p. 288).

Eliminate Most Controls: Lead with Context, Not Control

  • Consider your industry and what you want to achieve. Either lead with context or control. Leading with context only works if you have high talent density. Netflix leads with context. “The benefit is that the person builds the decision-making muscle to make better independent decisions in the future” (p. 309).
  • “When considering whether to lead with context or control, the second key question to ask is whether your goal is error prevention or innovation” (p. 315).
  • After establishing how to lead, establish a loosely coupled system that is highly aligned. “A loosely coupled design system has few interdependencies between the component parts. They are designed so that each can be adapted without going back and changing the foundation…The entire system is more flexible” (p. 318).
  • “If you’re starting up your own company and your goal is innovation and flexibility, try to keep decision-making decentralized, with few interdependencies between functions, in order to nurture loose coupling from the outset” (p. 319).
  • A mantra at Netflix is “Highly aligned, loosely coupled” (p. 321). Ensure all employees follow an established North Star: the general direction the company is moving towards (p. 325). Alignment towards a North Star is not the typical pyramid hierarchy, but a tree with the CEO as the roots and management as the branches.
  • “As a leader, when someone fails…ask what context you failed to set” (p. 325).
  • “If your goal is to build a more inventive, fast, and flexible organization, develop a culture of freedom and responsibility by establishing the necessary conditions so you can remove these rules and processes too” (p. 348).

Conclusion

  • With the right conditions in place, welcome constant change, operate closer to the edge of chaos, and do not provide a symphonic orchestra’s score—work on creating jazz and form an improvisational band (p. 401).

Hastings, R. & Meyer, E. (2020). No Rules Rules: Netflix and the Culture of Reinvention. New York: Penguin Random House.