Netflix Founder Reed Hastings Shares 5 Tips For Radically Disrupting An Industry

After getting dinged for $40 worth of late fees on a movie rental — or so the story goes — Reed Hastings was inspired to start Netflix. By selling, then renting, movies through two emerging technologies—DVDs and an e-commerce website—the company pivoted from the standard brick-and-Blockbuster model and disrupted the entertainment industry.

A decade later, Netflix pulled a second pivot/disruption when it began streaming movies and TV shows into peoples’ homes. In 2013 the company changed the game yet again with House of Cards, its first produced series.

What has allowed the $142B company to innovate and adapt? Some of the reasons can be found in its work culture, as co-CEO/executive chairman Hastings points out.

1: “No rules rules.”

In its Culture Deck: Freedom and Responsibility, Netflix describes a long-leash philosophy; no vacation policy (take as much time off as you want), no expense policy (charge it!), and one five-word principle: act in Netflix’s best interest. Independent thought is prized, and everyone is paid more than their market rate. “No Rules Rules” is also the title of a book by Hastings and co-written with Erin Meyer, a professor of Organizational Behavior at INSEAD, and subtitled “Netflix and the Culture of Reinvention.”

2. “A successful culture is one where people can disagree openly and move forward with candor.”

In 2011, Hastings decided to separate the company’s DVD business into a separate service, Qwikster. The move cost the company millions of subscribers and caused a stock drop of 75 percent. Hastings made a very public apology on YouTube that was parodied by SNL. Later, the CEO realized that many of his employees had privately pooh-poohed the idea. “What I found was many of our employees did not feel comfortable telling me that this was a bad idea,” he said in a 2020 video. Following the Qwikster debacle, Netflix instituted a policy of actively farming for dissent.

3. “For all of our leaders, including me as CEO, our job is to inspire, not to manage.”

Hastings likes to quote Antoine de Saint-Exupéry, author of the classic fable The Little Prince: “If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” At Netflix, employees are encouraged to make their own decisions – and own them, whether the payoff is a hit show or a failed ad campaign, like a misguided ad campaign to sell the dark anthology series Black Mirror to a Turkish audience. “When you sunshine your failed bets, everyone wins,” Hastings writes in No Rules Rules. “You win because people learn they can trust you to tell the truth and to take responsibility for your actions. The team wins because it learns from the lessons that came out of the project. And the company wins because everyone sees clearly that failed bets are an inherent part of an innovative success wheel.”

4. “It’s better to organize around flexibility and tolerate chaos.”

Companies normally play it safe and organize around a policy of caution and efficiency. “But that leads to rigidity,” Hastings told Forbes. One potent demonstration of Netflix’s flexibility occurred when the streamer pivoted from carefully curated high-brow content to TV mass-appeal global content. The idea was, as global head of global programming Bela Bajaria put it, to not just compete with cable but “all television.” The 2019 move caused a lot of whiplash among viewers and employees, but it supercharged the platform’s growth.

5. “Adequate performance gets a generous severance package.”

Faced with funding cuts in the early 2000s, Hastings had to lay off one-third of his employees. He and Patty McCord, Netflix’s chief talent officer, identified the highest performers, i.e. “the keepers.” Instead of causing a plunge in morale, the layoffs energized the new workplace. The company continues to cull the merely competent in its quest to build a roster of elite talent, which Hastings likens to a championship professional sports team. The elite talent includes creative execs working in Hollywood like Matt Thunell, an early supporter of the hit Netflix series Stranger Things.

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