Book Review & Notes: No Rules Rules by Reed Hastings and Erin Meyer

Rating: 9/10

Notes

• The book is structured into 3 parts/tips for building a great organization:
  1. Increase talent density 
  2. Increase candor 
  3. Remove rules/policies/procedures
• Netflix believes in paying its ‘rock-star employees’ a little bit above top of market – this is known as the “rock-star principle” in Silicon Valley 
  • And if someone ISN’T a rock-star employee – they don’t hire them 
  • They must be a ’stunning’ employee in Hastings’ words 
  • it’s better to have one employee that’s amazing, then have 5 mediocre ones
    • Save the salary that would go to the other 4 and just hire one person who’s incredible
• What’s more – is that having mediocre performers on your team can drag the whole team down 
  • It sends the message that mediocrity is acceptable 
  • It may even be demotivating to top performers
• Netflix discovered this when they had to cut 30% of their workforce and productivity actually went UP!
• Netflix doesn’t have an expense-approval process
  • It just tells its employees to “act in Netflix’s best interests”
    • Every so often, receipts are audited so that people that abuse the system are caught 
  • Hastings estimates that this may cause the company about 10% more than if they had rigid controls
    • But it’s worth it! A strict policy would alienate creative types; the types that enable Netflix to thrive – the top performers in their field
• Netflix also has no vacation policy – people take as much as they want and when they want
  • Save for certain exceptions, like accounting not being able to take vacation in early January during their busy season 
• BUT – Hastings notes, it’s critical that c-suite executives model this ethos by taking LOTS of vacation themselves and talking about ti loudly 
  • Otherwise a no vacation policy becomes a ’no vacation’ policy 
  • So Hastings takes at least 6 weeks of vacation each year – and many others do too
  • It’s a system built on trust – they TRUST people to do the right thing 
• On Candor 
  • It’s DISLOYAL to NOT say something when you disagree with someone
  • Your loyalty, if you’re part of Netflix, is to Netflix as a company 
    • Your goal can NOT be to please your boss
    • If you don’t think something will work, you better say so
  • Whisper wins and shout losses 
    • If you’ve screwed up, let the company know 
  • If thinking about corporate reorganizations, let the company know – i.e just be straight with people and trust that they’re intelligent adults that can handle and deserve the truth 
• Give people raises before you have to
  • Ensure you continue to pay them top of market 
  • This means 30% raises some years and zero the next, rather than the standard 2-3% cost of living raises that most companies offer irrespective of performance 
• On that note, do AWAY with performance bonuses 
  • Rather than $200k with a 15% bonus, just offer $230k
  • Studies show that people are far LESS CREATIVE if they feel that their compensation depends on hitting certain targets
  • You want to give them enough money to feel secure, but not tie their compensation to performance in a way that will create stress and stifle creativity 
• If it wins, celebrate it. If it fails, sunshine it.
  • Sunshining is the process of loudly talking about your failures with the whole team, but more importantly, telling everyone what you LEARNED and how you can do things differently in the future
    • It’s critical here for the bosses not to make a big deal over the failure, but really just to highlight the learnings
• Netflix employs what’s called the “keeper” test, which invites managers to ask of their employees:
  • “If this person came to me and stated they were leaving, how hard would I fight to keep them?” 
    • If they’d fight hard, then that person is a stunning employee
    • If not, then they should either be immediately given steps to improve or let go with generous severance
• Most places have performance improvement plans (PIPs) in place to help struggling employees
  • But Netflix would rather get rid of the underperforming employee right away, and use that money the they would have paid them over the next few months to just give them a generous severance 
    • This saves them the intangible cost of having an underperforming team member for several months when they could be instead focused on replacing them with a stunning employee 
• Netflix doesn’t think of themselves as a FAMILY, but as a CHAMPIONSHIP SPORTS TEAM
  • In a family, you don’t let go of underperforming players
  • But in a pro sports team, you routinely swap players in and out, doing whatever you think you can do to give your team the best chance to succeed
    • This makes sense to me as a better model for organizations
• I like his point about staring at what you want, rather than staring at your fears 
  • Experts have shown that by focusing on what you fear, you’re more likely to create that very situation
• Rather than building a top-down hierarchical model, Netflix is more like a bottom-up organization, where the leadership is like the roots of a tree and the subsequent team members are the branches
  • Reed Hastings, as CEO, sets the direction of the company with a broad vision- the root
  • A VP takes that vision and then has the freedom to decide how best to implement it in their given area – the first branch 
  • An informed team captain then has the power to decide which individual movies and shows to order based on guidance from their VP – the final branch
• At Netflix, this whole concept is called leading with context, not control
  • They don’t tell their team members what content to buy, how much to spend, etc. – they set the direction, and then trust that their people will make the right decisions 
• A great example of this is how Icarus, the Oscar winning documentary, was purchased
  • They bought it at the Sundance film festival 
  • The leader of documentaries wanted it, but it would mean outbidding every other company and pay an unprecedented amount for a doc, so he went to Ted Sarandos, the COO
  • Ted didn’t say yes or no, he simply asked – “is it the ONE?” – meaning, is it the documentary that is going to be a hit or an Oscar-winner 
    • And said that if it was the one, then they should spend whatever they needed to
    • That’s CONTEXT, not control
    • Control would have been stating that the company could only spend amount of dollars on the project and no more
• At Netflix, you have to do what’s in the best interests of the company. Your job is NOT to please your boss
  • Otherwise, you get into a “the emperor has no clothes” situation 
• But aren’t their situations where you really lead with control? When a culture of “freedom and responsibility” (a famous Netflixism) just doesn’t cut it?
  • YES! It depends on your industry
  • In some industries and for some tasks, preventing errors is paramount
    • Ensuring a surgeon operates on the correct knee for example – you need a strictly regulated process for that
  • But for creative companies, it’s WAY more important that they focus on innovation 
    • The risk of playing it safe when errors aren’t fatal is that you’ll get left behind and die, out-innovated by more daring companies 

• Overall, a really excellent, list, breezy read
  • Which isn’t to say it was light on substance
  • It was succinct, nothing wrong with that 
  • One of the best books I’ve read on creating a great organizational culture