For four years, Netflix had been growing steadily. It’s DVD-based subscription service was proving successful, two years before the medium surpassed VHS as the most popular form of home media distribution.
Then the bubble burst.
The dot-com bubble, that is. Soon after, the 9/11 attacks occurred, and things changed dramatically. Suddenly, the company had gone from planning its IPO to laying off a third of its 120 employees.
Mere months later, DVD players became the hottest gift of Christmas 2001, and Netflix’s offerings were in-demand like never before. They had to work out how to deliver the same service to a wider client base, only now without 33% of its workforce.
The experience was a brutal one for co-founder and CEO Reed Hastings and CTO Patty McCord, but it was one that set the foundations for Netflix’s revolutionary HR culture.
In 2009, Hastings posted a 124-slide presentation entitled Netflix Culture: Freedom and Responsibility to SlideShare. The intention was to link it to the company’s job application page for interested prospects, but it soon went viral. Today, it has received over 14.2 million views, and has been called “the most important document ever to come out of the Valley” by Facebook COO Sheryl Sandberg.
The presentation highlights the seven key aspects of Netflix culture:
Values Are What We Value
“The actual company values, as opposed to the nice-sounding values, are shown by who gets rewarded, promoted, and let go.”
High Performance
“Adequate performance gets a generous severance package.”
Freedom and Responsibility
“With the right people, instead of a Culture of Process Adherence, we have a Culture of Creativity and Self-Discipline, Freedom and Responsibility.”
Context, Not Control
“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.”
Highly Aligned, Loosely Coupled
“The goal is to be big, and fast, and flexible.”
Pay Top of Market
“One outstanding employee gets more done and costs less than two adequate employees.”
Promotions & Development
“We want people to manage their own career growth, and not rely on a corporation for ‘planning’ their careers.”
Honesty too plays a large part in Netflix’s culture. Employees are given control over travel and expense costs, allowing the company to avoid paying travel agent fees and dealing with added paperwork.
It takes a lot of faith in a business with 3500 staff to allow such responsibility, but Netflix has always treated its employees as adults, reminding them of five simple words: “Act in Netflix’s best interests”.
Some employees who treated themselves to lavish lunches as a result, but as McCord puts it in her article for Harvard Business Review: “…97% of your employees will do the right thing. Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause. Instead, we tried really hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.”
As such, Netflix treats itself not as a family – a term companies like Yahoo! have used to describe themselves in the past – but as a professional sports team.
They implemented the Keeper’s Test, which asks “Which of my people, if they told me they were leaving for a similar job at a peer company, would I fight hard to keep at Netflix?” Hastings advises “The other people should get generous severances now, so that we can open a slot to try to find a star for that role”.
The company has also got rid of policies dictating how much time off employees get in an exchange for a system under which the individual and their manager decide how much time off the employee deserves. It’s not about giving the most valued member preferential treatment, but about ensuring each and every one of them is getting the right amount of time to refuel and return to work eager to give their best.
Most radically of all, perhaps, is Neflix’s decision to got rid of annual reviews. They implemented a 360-degree review in its stead, which sees teams either provide signed feedback or discuss face-to-face what they thought other members were doing well, and what they could improve on. The process allows managers to get an organic sense of where their team is at without having to rely on one member ‘telling on’ another.
These concepts fly in the face of traditional HR practices, and that’s one of the main reasons they work so well. McCord writes, “…I’ve never seen an HR initiative that improved morale. HR departments might throw parties and hand out T-shirts, but if the stock price is falling or the company’s products aren’t perceived as successful, the people at those parties will quietly complain—and they’ll use the T-shirts to wash their cars”.
The process works well. So well, in fact, that McCord herself was asked to move on in 2012 as the company realised her skills were no longer required. Even with her having moved on to new ventures, the culture continues to thrive. By January 2016, it had expanded into almost every territory in the world, and services over 81 million subscribers.