Blockbuster was offered to acquire Netflix for $50 million. The video rental company, which was one hundred times bigger than the fledgling online competitor, declined. This was a dire mistake. Netflix survived, but the incumbent became obsolete.
Netflix thrived while the video rental industry was being disrupted because the company focused on building a culture of freedom and responsibility. They did this by hiring and retaining top-performing employees and implementing fewer controls.
A great workplace consists of incredible colleagues. This involves having a team of highly skilled individuals with diverse backgrounds who can creatively solve problems, perform at their best, and collaborate effectively.
Many companies foster a culture where employees fear speaking up, offering constructive feedback, and expressing their true thoughts. However, Netflix's workforce is highly effective because of this principle of selfless, almost extreme candor. When you combine high-performing team members with this kind of selfless candor, you achieve exceptional performance.
In addition to hiring top performers, fostering talent density, and encouraging candor, Netflix has removed many controls typical of traditional companies. At Netflix, there is no vacation policy, and vacation days are not tracked, promoting a culture of freedom that boosts creativity.
These three pillars—hiring and retaining only talented high performers, encouraging selfless candor, and minimizing traditional controls—can be summarized as the blueprint for Netflix’s success.
Another way Netflix eliminated controls was by abolishing travel and expense approvals. Instead of micro-managing expenses, employees are encouraged to be frugal with company funds, spending as if it were their own, and to act in the company’s best interest.
You need to offer competitive salaries to attract and retain top performers for your company. In fact, you should pay more than other companies. Additionally, avoid relying on performance-based bonuses; include any bonuses directly in your salary.
To prevent employees from seeking new jobs, increase their salaries annually. Rather than waiting for your top talent to request a raise, and before they begin searching for a new position, compensate them more proactively. By consistently offering slightly higher pay than other companies, you can retain your high-performing workforce.
In a world where many businesses seem to prioritize paying as little as possible, this approach is refreshing. Your organization is the sum of its team members, and numerous executives follow a similar playbook, aiming to hire the smartest and most talented individuals.
Netflix fosters a culture of responsible transparency. Company secrets are shared openly, enhancing the sense of ownership, responsibility, and care among employees. This cultivates trust, and when employees feel trusted, they tend to act more reliably.
Netflix provides managers with the “keeper test” to determine if someone should remain with the company: If an employee were to resign tomorrow, would you fight for them? Or would you feel a sense of relief? If the latter applies, let them go immediately and replace them with a top performer you’re willing to fight for.
There has been some pushback against Netflix’s workplace culture, sometimes described as a culture of fear. While employees earn excellent salaries and receive generous severance packages if they are let go, some employees might not be able to deal with the pressure.
In addition to reducing oversight by eliminating vacation policies and approvals for travel and expenses, Netflix has removed the requirement for decision-making approval. Rather than seeking permission from their boss, employees are encouraged to make smart choices that benefit the company.
When Netflix employees make decisions, it’s as if they’re placing a bet. While they have the freedom and flexibility to make decisions deemed optimal for the company, they must take ownership of their decisions and openly share and learn from “failed bets.”
Many companies treat their workforce like family. However, this approach can lead to underperformers remaining with the company. After Netflix’s layoffs in 2001, performance improved significantly. Since then, Netflix has focused on building a strong team instead of a family.
In some companies, it seems that after three years, you’ll be there forever. Netflix takes a different approach: you could lose your job anytime if you’re not considered a “keeper.” Ironically, Patty McCord, who introduced Netflix’s “keeper test,” was let go in 2011 using that same test.
Rather than organizing a company like a pyramid with a rigid hierarchy and top-down performance controls, Netflix resembles a tree. Flexible structures encourage greater innovation.
As your company expands globally, its workforce culture must adapt to the diverse cultures and laws of each country. For instance, Japan has a more indirect culture compared to the Netherlands. Depending on which country your company is expanding its workforce into, the company culture needs to be flexible rather than overly rigid in these regions.
When hiring employees, look for the most talented, high-performing candidates. Create talent density. Provide competitive salaries and do whatever it takes to attract absolute A-players to your company.
Foster a culture of radical candor. Encourage every team member to share constructive feedback. This should be delivered in a manner that offers assistance and actionable advice. Make it clear that this type of feedback should be accepted without taking it personally.
Minimize controls. Eliminate vacation policies as well as travel and expense approvals. Empower your team members to make decisions independently, provided they align with the company's best interests. Each employee has a set number of “bets” they can make, for which they must take responsibility and be held accountable.
No Rules Rules is an interesting book about the inner workings of Netflix’s workplace culture. While this culture is attributed to Netflix’s success, it’s hard to ignore other factors that contributed to the streaming company’s rise. Great timing, riding a new technological trend (the Internet), being small and flexible compared to Blockbuster, which was one hundred times bigger, and a bit of luck are likely reasons why Netflix became one of the world’s most valuable companies.
What readers will miss in this book are insights into Netflix’s inner workings outside of its workplace. What marketing strategies did the company deploy? What struggles did it have to overcome? While some anecdotes hint at these things, they’re mostly told through the lens of managerial techniques.
Some people note that Netflix’s workplace culture isn’t necessarily unique. Many tech companies deploy similar playbooks for hiring and creating high-performing teams. Small businesses that don’t have the funds to pay competitive salaries might think they’re doomed. However, it’s important to remember that Netflix’s playbook might not be right for every business, especially outside the tech sector. Finally, criticism about Netflix creating a “culture of fear” shouldn’t be ignored, although this high-performance, high-pressure culture of freedom and responsibility does appear to work for many tech companies.
Despite some of the shortcomings, this book is a pleasant read. The book is well-structured. Each chapter contains a summary of key points, making it easy to absorb information.
No Rules Rules is for anyone who wants to learn more about the inner workings of Netflix’s workplace. However, readers will miss an inside look at Netflix as a whole, such as its marketing strategies, stories about shows and movies, or pivotal moments in its history. While some of this is present in the book, it’s mostly a book about managerial strategy.
This summary of No Rules Rules leaves out many stories about how team members made certain shows and movies happen using Netflix’s principle of freedom and responsibility.
Alongside their workplace culture, Netflix embraced the internet and had a forward-looking vision. In contrast, Blockbuster appeared not to recognize how disruptive the internet would become for many industries, including the video rental market.