3 secrets to Netflixs success Reed Hastings and Chris Anderson

reid hastings what did you like to get

to speak with you

oh it’s the treat to be here chris uh

wish you were in better times we’ll make

the best of it

uh but we’ve been working on the book

for three years so it’s great to

have a chance to talk it through um

yes so you’ve come out with a very

striking book and we’re going to

dive into it before we go there um i

just

i want to check in with you first of all

about just how

netflix has done during the pandemic

is it everyone assumes i think that it’s

been

a time of massive success for you

everyone’s suddenly got all this time to

watch your content you know during the

first half of the year we did grow from

170 million roughly to 195 million

so you know it’s good growth like amazon

we’re busy

and we’re super proud just to be part of

people’s escape and to be able to give

them a little bit of pleasure

in these very difficult times where

people are stuck at home

and beyond the growth in subscribers

what’s been the growth

in actual hours viewed

oh pretty similar i mean the first two

weeks there was a big shock factor where

nobody left the house at all i think now

even though people are quarantined

they’re

you know living more full lives we’ve

got sports that’s on a little bit so

pretty normalized now

i mean has there been any concern that

because it’s so hard to produce content

right now that actually

somehow people would exhaust a lot of

the content that’s right for them on

netflix and that you’re going to run

into a big problem in a few months time

from just lack of content you know we’ll

have

more original programming this year than

we did last year

and we’ll have more next year than we

did this year

and the key there is our international

growth and expansion because in europe

right now we’re able to produce

in canada we’re able to produce in

australia we’re able to produce

so we’re very diversified and that’s

helping

reid tell me a bit more about you before

you founded co-founded netflix

um what what was the story before then

uh unremarkable kid

went to college and found i really loved

mathematics

but i didn’t really want to be a

professor so i became a math teacher

in the us peace corps loved that super

rural part of southern africa

came back and the lucky break of my life

was getting in a stanford grad school

in a.i uh 30 years ago

and it was a very different ai than

today but it set off

uh just a lifelong curiosity about

humans technology how it all comes

together

then i got super lucky again and created

a very technical software company in the

90s that

did well and that was my evolution from

engineer to ceo i had never managed a

person

at all and then suddenly i was ceo of

this company because i had the first

idea

that company doubled every year for

six seven years morgan stanley took us

public in 1995.

it was a big deal at the time but i was

not

a very good ceo good product person so

we kept growing but as a lead are

pretty rough and netflix for me

has been redemption it’s been a chance

to really refine and understand

and reflect on leadership and learn so

much from

all the people that have written books

before now

and this book no rules rules is sort of

my contribution

back to the system that i’ve learned so

much from

which is other people writing books well

certainly

netflix has been amazing to look at as

an outsider it’s been a story

of these radical shifts

in strategy every few years it seemed

like

um really bold um occasionally almost

reckless there was there was a switch

from being a male

you know movies delivered on dvd and

returned

to streaming um which um

was a little awkward in how it happened

but was so important

and and um you know key to your future

but then even

i think an even more surprising shift

for me

was um i guess a little more than seven

years ago

when suddenly you started producing your

own content

like house of cards when that deal was

announced i think a lot of people

said wait a second this is never

going to work these guys are nerdy

internet guys you know just doing a fine

distribution service licensing other

people’s content but i mean

this this is this is craziness this is

hubris

trying to create your own content

and then wait a second actually it

actually worked

and and the way i almost read your book

is is to say

um yeah exactly there was there was

always more to this company

than um sort of technical skills

there was this obsession with with uh

with

empowering innovation and it’s i’m sure

you would argue that it was

fundamentally

um that which allowed things like the

whole shift to

house of cards happen is that is that is

that fair that you you credit

this individual story about that shift

but at heart there was this

this culture of innovation

and excellence is that a fair summary

yeah we do think of it as the culture

has allowed us to um you know create

this business initially with

dvd by mail and you know when we went

public 20 years ago

we were about 50 million in revenue

blockbuster was over five billion so a

hundred times larger than us

um and that was a heck of a battle for

six seven years

uh because you know they were a good

firm they weren’t a bad firm at all

um and then to figure out streaming you

know from dvd

and then to figure out original content

and

to be able to go global it’s a lot of

change in in 20 years

and at root we do think it’s the culture

that really

enables that kind of innovation well

your book starts with a

quite an entertaining story of how you

tried to sell yourselves to

blockbuster for 50 million dollars back

in the

way back in the early days and they kind

of laughed and turned you down

um and um would probably take a

different decision now

where they to have the choice again but

reid someone could say that that story

of your

conquering blockbuster isn’t necessarily

a story about

a superior culture it could easily be

explained by just

you know it’s another internet story you

had a fundamentally

better business model for the era

distributing

videos over the internet at whatever a

few cents or less

per to deliver a movie is just

fundamentally a better idea than making

people

walk to a store pay huge late fees when

they don’t physically return the actual

product of course the convenience of

online streaming

is what was ultimately going to win yeah

i agree with you we’ve seen that story

of internet company against incumbent

many times

um and so i hear you that that’s not

that you is great but it’s not that

unique

but then the unique part is not getting

stuck in that but then pivoting that

business

so so much right and the fact that

you’ve successfully done that

several times does give a lot of

credence to your

belief that there is something special

in the waters over there

so talk to me about what some of that

specialness

is um i see in the book through

basically

three things repeated again and again

and

they almost say feed each other to the

point where you actually

the way you the way you’ve structured

this book they there’s a cycle of three

that’s repeated each time of kind of

you know level one level two level three

of three different things what are

those three different things i mean

start start

with this notion of talent density

i think you call it what is that well if

you have the

right people together amazing things can

happen

i think everybody knows that we’re just

more

clear that we’re willing to pay a price

to achieve that so everybody tries to

hire well there’s no real

difference in everyone’s ambition in

that direction

what’s different about netflix is the

keeper tests

and what we say is for managers is

would their people if they were leaving

to go to another company would we try to

change their mind to keep them

we would fight to keep them and if we

fight to keep them great

if there’s someone that you wouldn’t

fight to keep

we say give them a generous severance

package four to six months of

compensation

now and let them go find a place that’s

a better match

and let us find a great new talent

that may be one of those great people

and when you find that great talent you

are willing to pay

the absolute top of market price to get

them

yeah i mean again the economic insight

is the best people

perform 10 or 100 times better than the

typical

and so there’s a big premium in our

business

to getting the best people even if it

costs you twice as much

because you’ve got people who are many

times

more effective and that’s an aspect of

creative work

generally the best authors the best

software writers the best actors

you know it’s across many industries

that are creative

so talk a bit more about that because

you distinguish in the book between

creative roles and operational roles

the advice you’re giving here doesn’t

necessarily apply in the same way

to operational roles that you call it

sort of more routine work

that that there will just be less uh

variance on what a super talented or

committed person could do versus a less

committed big picture um

you know we’ve had 300 years of the

factory driving our economy and economic

growth and prosperity and wealth

so it’s natural that the paradigm of the

factory

the top boss the line worker who you

know follows the rules

that that has a lot of influence in our

culture

and the other big model is the family

and you’ve got family firms

and what we’re trying to say is those

are good for some things

but for creative work there’s a

different model

in a factory you control people you

supervise

them but in creative work you want to

inspire them

you want to excite them and that’s

completely different

and yet many people still run creative

firms

almost as if they wanted to be a factory

i know

because i did it in our first company in

pure software

every time something went wrong i would

put a process in place

to try to make sure that thing didn’t go

wrong again

and that works in the short term but it

makes you very rigid

and then the market shifted in that case

it was c plus plus to java but

they all shift in some way and we were

unable to adapt

partially because we had all these

processes

and we had people who wanted to follow

them

so this is where the subtlety is

you really want to focus on flexibility

rather than efficiency and there’s so

much literature from manufacturing

about setting objectives holding people

accountable

efficiency and all of that stuff works

for factories

and there’s a better way for creative

work which is

focusing on inspiration so talk a bit

more because it’s

it’s certainly um i think it’s known

that in something like

software writing that a brilliant

programmer really can

do perform 100 times better than an

average programmer

and that you can have circumstances

where a single programmer can

could outperform a team of literally a

hundred other programmers

um but does that does that apply in

other

creative areas like when when you when

you

talk about the um exponential

skills of a super talented creative

person

is that does that mean that you

literally do you literally can hire far

fewer people or is it just that the the

output of their work will actually be

more impressive

you can hire fewer people so it would be

better

in highly creative work to have five

people that were incredibly talented

working on some given project and that

could be making a movie

it could be a making marketing campaign

could be

winning an election or it could be uh

you know writing software then 10 or 100

people

who were less good so that’s why

we talk about it as uh talent density

getting super talented people and they

thrive on each other

and then they thrive on freedom um which

is the next part uh

of what we work on let’s come to that in

a minute um i mean this reminds me of

the

story of gideon in the in the bible

where

where um he was originally had a force

of 32

000 men up against the midianites that

were a much bigger army

and um the strategy was actually to let

go

of most of them you let go of the ones

who were afraid you were let go the ones

who couldn’t drink water the right way

whatever you end up with the force of

300 men who who actually then still beat

the enemy and it’s

it’s um um so so

so step one is almost have have lean but

brilliant teams and be willing to

let go of people who not who are bad

but who are merely solid that’s right in

and remember it’s not just about the

individual performance

it’s about how the individual works with

the team because it

everything we do is teamwork and so and

teamwork is a skill i mean most people

want it

but only a few people are so good that

they know when to do a blind pass or

when to reach out and let their team out

teammate know about things

so remember it’s it’s both the

individual talent and the team

skill so the analogy we use a lot is

professional sports

you know if you want to uh have world

class and world cup winning teams

you need to assemble an amazing group of

people

at every position and you actually use

the word team

almost in contrary distinction to family

a lot of

organizations including that ted we’ve

sometimes

used this language we say we’re a family

here

um and um and that that that is supposed

to

generate this warm supportive loving

culture

you actually say no that’s that’s

actually probably not the right

metaphor go with with teams which are

where there’s more competitive and you

are actually willing to do things that

you would never do to a

family member you can’t fire your sister

well that’s exactly right which is you

know the family is really about

unconditional love and

you know if your sister steals from you

you still love her

and you know if your brother does

something awful you still love them

and so families can be very

dysfunctional

but we admire them for loyalty above all

that they stick with each other and

that’s how i want to be as a family

member also

but then a team is really about

performance and it’s about contribution

and about effectiveness with other

people but some people read

may listen to that and kind of react in

shock and saying

wait a second you’re you’re talking

about

inviting people to come to your company

and that they’re kind of they’re going

to be

they’re going to be terrified the whole

time that they’re not measuring

up that they may have to leave isn’t

this a recipe for like a toxic

work culture well again think of

athletics

um you know an athlete could get injured

in

any game and end their career and do

they walk around terrified

no you know what they do is they have

the discipline to lean

into the joy of play of winning

and you know the hunger of the excellent

teammates

and so you know people get used to

moving forward and they understand if

you’re clear that it’s a team

that not everyone will be on the team

and they maintain the friendships

and you know we’re friends with all the

people that have been cut from netflix

and

it’s like an olympic team if you’ve had

a friend who’s been on one of those and

then they get cut i mean it’s very sad

it’s disappointing it’s heartbreaking

but there’s no shame in it i mean to

compete at that elite level

it’s you know fantastic so a second

leg of your three-legged stool is canda

um talk about that there’s this unique

sense of

transparency um to a point that would

really shock some people

well you know i grew up aspiring to be

kind

okay and aspiring to be liked and

certainly not aspiring to cause pain

and so i avoided conflict my when all

that time i was a bad ceo i would

you know never deal with conflict

because i didn’t want to hurt people’s

feelings

and um i had just the most admit my wife

and i had the most amazing marriage

counselor

in uh now 25 years ago

and he got me to see that i was

just systematically lying about

everything

because i would say things like families

the most important thing

and then i would stay at work in the

evening with some employee had a problem

and i would ignore my family i mean so i

was just so

disconnected from the reality and

he got me to to see that living more

honestly would be much better

about you know trade-offs between work

and family and other things and

he did wonders uh for my marriage and a

couple days ago we had our 29th wedding

anniversary so that’s great

but relative to to work he got me to be

an honesty seeking ceo instead of a kind

seeking and so now i’m can be very

straightforward about performance and

what’s happening

and um and i’m you know i don’t like

causing pain but it’s more again like

athletic training

so your trainer is there saying you know

give me five more push-ups

and that hurts okay but you do it

okay and because you realize when you’re

exercising that pain

is helping you be stronger it’s the same

thing

with good feedback with candor is that

it can hurt but it still hurts me

sometimes

but done well it produces growth

and that’s what’s so stimulating so

you have this team of super high

performers and

their instructions are to be willing to

take

if necessary brutally honest feedback

from each other

so that they can learn so that they can

grow

even if it hurts yeah i mean we would

try to minimize the brutality just like

in a workout you don’t want to work out

to be brutal that doesn’t make you

stronger

you want to work out to be constructive

and productive

so i mean occasionally it might feel

brutal but

honestly that’s not what we admire what

we admire is thoughtful

feedback with positive intent that’s

really helping a person get better at

what they do

and you adopt this yourself you’re

willing to take criticism

from people anywhere in the company

yeah um so it’s so important

you know generally in everything it’s

important to be a role model as a leader

but in particular in feedback because of

the power dynamics

you really have to create an openness

for people to give you feedback by

giving them psychological rewards that

was so great by lauding them

and we do things to farm for dissent

so let’s say there’s a decision about

you know

what should we do about uh the pandemic

and you know what should we

you know then we would open it up for

discussion

and then we want each person to weigh in

with do they think it’s a good idea

or bad idea to say close down or

whatever the issue is

another thing we do is run an exercise

what would be different

if you were ceo instead of me and it’s a

way of people writing down some people

say things like well

lunches would be better but you know

fairly trivial and other people say

things of

you know we would be in the video game

market and here’s why

and and other people would you know all

different things so

think of these all as devices that we

have in the book

that are ways of farming for dissent as

the general principle

i mean in the book um you

talked through um you know four

instances of that are really quite

surprising i think your your co-author

erin

mayer puts these four tough questions to

you on on candor

and uh in each case the answers at least

to me were quite were quite surprising

that you were willing to go there so one

of them

was the instance you’re you’re a public

company um

you’re announcing you’re about to

announce your quarterly

results

do you let employees internally know

those numbers

ahead of time knowing that anyone who

leaks that information

could go to jail or do you do what most

companies do and

keep that information absolutely tightly

controlled which way do you go

we go open with the information um

and at netflix but in my first company

of course we spent elaborate time

making sure that no one could see this

and this and we had information controls

and compartmentalization and it’s like

all a big power trip

and really when you think about it if

you think about risks

there’s short-term risks which would not

be good if somebody leaks the

information

and there’s long-term risks which is

employees understand they feel

power they feel in control they feel

special

and organizations really have many more

risks of the latter

sort of employee alienation than they do

about potentially someone leaking

something

so you know for us we want to be

you know very transparent very open with

employees

have them feel very trusted and what we

get back

is then the sense of commitment that

they have and that they really go the

extra mile

because they care because they feel it’s

unique and so

just like our unlimited vacation this

sharing the the earnings numbers

there’s sort of big symbolism that is we

don’t

you know we don’t beat blockbuster or

hbo

because we release our numbers and they

don’t okay

but it’s part of uh creating a culture

that’s unique and

open and candid so you tell people

i mean they’re clear what the rules are

that that it’s illegal for them to share

this information

but nonetheless you you share it and you

also share

like key company strategy

documents that would be um invaluable to

a competitor you’re willing to trust

even like new employees

with with that information has that

really never

come back to bite you no it has come

back to bite us so

think about it is there are lots of

little bites you get

in sharing information okay it’s not

perfect

but you recognize that what that does

you get an exchange of that openness for

all the other people

is you get a great sense of buy-in of

commitment of uniqueness

and then if you think about the risks

again in my first company which didn’t

work out as well

every time there was a small bite i

wanted to fix that problem

okay and then you get more and more

rigid more process

more control of information um and so

it’s it but in the short term it’s fine

okay it’s just that

uh sometimes we call it as like building

up barnacles on a boat

right and then no one never takes the

time to scrape them and eventually it

sinks you

so that’s why we try to always invest

in in that openness and candor

another example um that was put to you

was okay so what if

the company is thinking about some kind

of restructuring

and uh a manager is told that that

several of her employees has a 50

chance of losing their job should that

manager

tell those employees that their jobs may

be at risk what’s what’s your

recommendation on canada

in that circumstance to lean into the

candor

and to tell the potential uh the

employee with the potential job losses

about it

and to get their opinion on it and

involve them and

we try to develop you know mature

thinking people

and i’m not saying it doesn’t scare them

it does but on balance they would rather

be involved in the decision

and then are more effective on executing

it if we’re

you know changing in some way like that

so

um you know we really want

uh people to be involved and trusted and

it is harder you know

if you want to have a simple job where

you don’t have to think and you can just

work you know eight to five

and and have no worries you know we’re

not the right place

and if you’re the kind of person that

wants to grow and learn

and understand more and you’re willing

to be challenged in various ways

then you love netflix i mean is this an

instance

where again these these two legs belong

together that it’s only because

you’re recruiting and retaining um

people who who are strongly talented and

know they are that you can afford

to have a culture which gives them

absolutely honest

um criticism at times because in for

many people you

would say no no that would crush

someone’s confidence

and they then won’t perform that you

need to

anchor your management style on

encouraging people and praising them

and and so forth and you’re often being

willing to do

the opposite so is it is it is it only

because

you’re you you start with this talent

density

exactly so it’s an ecosystem

and it’s why in the book we kind of help

people think about how to evolve towards

it you wouldn’t want to

change overnight to do all these things

it’s too radical

it’s like take you can take this step

this step try it see how it works

and you build confidence over time um

in doing all these steps including you

know setting context and all the things

we have coming up

so then talk about um the next leg of

the store the third leg

here um controls when you have these

other things

in place you can afford to do something

pretty radical in terms of the way that

companies normally control what

employees do talk about that we want our

leaders to be great teachers

okay to be in again inspirational

and not to be controlling uh think of

the

we’re trying to get away from the

factory paradigm where they set the

rules you follow them as the worker

and we’re trying to really show people

you don’t need these controls and

some of the the symbolic things in that

are things like no limits on vacation

and

it’s really just symbolic okay because

it’s it’s not again like we beat

blockbuster you know or hbo because

you know we have unlimited vacation and

they don’t

but it’s one more aspect of trusting

people

and think about it just logically we

don’t know

how many hours a person works in a day

are they working

eight hours a day 10 12 we don’t track

any of that

so why should we track whether they take

work for 48 weeks

or work for 46 weeks or work for 50

weeks

you know it’s in the noise so and people

say well

what if somebody takes on you know too

much vacation

and i’m like you know we don’t have a

clothing policy

and yet people don’t come to work naked

so

why is that you know and that’s because

they have a cultural belief about

it’s appropriate to wear clothing in the

office

so it’s the same kind of thing about

vacation people have expectations

um and that works and then the other

fear potentially is that no one takes

vacation because

you know you don’t know how much you can

take but you know i take a lot try to

set a great example that way and um

and people have great vacations and

great lives and also accomplish a lot of

work

so this is definitely head scratching

for some people thinking about this they

go but

but wait a sec there would always be

someone who would

cause huge annoyance by abusing this

policy and

and constantly taking time off does

what happens then that person just gets

fired because

they’re suddenly no longer really

supporting the culture how do you avoid

that

well let’s take a case of um someone’s

takes every other month is vacation

but they’re just incredibly productive

but when they come back they’ve got all

these fresh ideas that

like are amazing i mean you know i i

would fight to keep that person

so it’s really not about you know how

many hours you’re in the office or

how much you work it’s trying to get to

the contribution

and let’s take a case where you know if

someone did abuse it

sure but again that might be 100 1 in 50

and the whole theory here is we’re not

focused on efficiency

we’re focused on flexibility and

inspiration so you have to say

there’s going to be lots of little

things going wrong

but in the big scheme of things so what

and what you really want to care about

is a group of people

who are just always trying to think

creatively how do we serve the customers

better

how do we grow the business and if

you’ve got everyone thinking

independently about you know how to

please the customers how to grow the

business it’s very powerful

i mean you talk a lot in the book about

how combined with that

letting go of control you need to

establish

context so that people basically get the

sense so another control for example

that you

have let go of is expense management

there aren’t

really expense rules but there is i

guess modeling

by managers and

i i assume that there’s some kind of

understanding of what is normally okay

for example

the circumstances where someone could

just book a you know

business class flight for example versus

economy that that that becomes part of

the

cultural expectations somehow yeah i

mean

the guidance or context that we give is

do what’s in netflix’s best interest

so if you’ve got to be uh you’re flying

overnight

and then you’re going right into the

office and you’ve got a big presentation

it definitely makes sense to

you know get sleep well on the flight

and that

and so so think of it as it’s very

makes people have to think you know uh

is this the right thing to do for

netflix and if it is

you know they can order champagne i mean

you know if that’s the right thing to do

and entertaining some

you know host it’s fine we don’t have to

set rules about it

um but in general you you may have to

defend

why it’s in netflix’s best interest and

you know on occasion we do have people

who uh you know

are hugely extravagant and cheap on the

system basically

um and then they’re gone again so

but you can’t worry about the little

mistakes

or you’ll get consumed with them what

you’re trying to do

is is keep it healthy for everybody else

where it’s very simple

and they don’t have to seek permission

you know for each little thing

but humans are very um can easily be

annoyed by what is perceived as sort of

i don’t know

unfair or you know taking the piss

behavior by by

a colleague are you sure that there

aren’t actually lots of little

resentments and annoyances going on that

actually are quite

destructive when it actually would be

quite simple just to

give a few guidelines isn’t what most

people want

like couldn’t you have a variant of your

policy where there are basic guidelines

in place but you say to people look if

if there are exceptional circumstances

use your judgment

yeah um absolutely um

and maybe that’ll be a little bit better

so you know so other companies can try

that or maybe they find

that then once they go to one rule like

if the flight’s longer than eight hours

you could do business class okay

and then the question comes up well what

about if it stops somewhere and there’s

a long layover

and what about if it’s overnight what

about if the business class flight’s

very cheap and

it’s like once you start getting into

specifying rules

there’s no end it just goes on and on so

that’s why we

do the general principle which in this

one the original general principle

was spend the money as if it was your

own

okay and then there was two problems

with that which is

sometimes people would be like i know

when i travel myself

i do extravagant travel that’s how i

travel okay

and then you got the opposite which is

no i’m uh

when i travel personally i’m very cheap

but i don’t do it very often

and you know i have to travel for work a

lot and so i want to travel differently

than i do personally

so that was a case where we saw over

time that our context

which was spend as if it was your own

money was not correct

and we adjusted it to be spending it

uh as you think is in netflix’s best

interest

so when you put these pieces together

you have this philosophy of

of what you call freedom plus

responsibility it’s it’s sort of

you you replace the whole panoply of

policies and rules and just say

you basically say get tons of people

let them do their thing but let them own

own the outcome

of that thing that’s right so you can

think of it as the macro thing is use

good judgment

okay and then for every and then you’re

going to have some mistakes

but the whole point of it is those don’t

really matter

in the success of the company over multi

decades

okay what matters and success of the

company over multi decades

is the new ideas so everything’s

organized around

uh let’s have you know this fertile so

the old world is sterile

follow the rules factory okay and the

world we’re trying to create is fertile

and it’s a little bit chaotic and it’s

dirty and it’s messy and mistakes get

made

but ideas get generated and there’s

fresh thinking and people

are independently trying to think what’s

good for the customers what’s good for

the company how do we grow

and that’s very powerful and it

overwhelms

essentially the small amount of little

mistakes that come

that all those controls are trying to to

serve

so put those pieces to together

reed and and um give an example of how

you know this culture has allowed

talent to be attracted and to flourish

that has been able to successfully take

on

you know the world’s giant studios with

all their creative

talent how on earth is it that you’ve

been able to

you know coming from this sort of tech

background be able to

come in and um you know produce content

that competes the early story i always

heard was that oh you had all this data

that they didn’t have and you could see

what

what kind of users actually wanted

um how much is it that the story versus

attracting genuinely brilliant creative

people and empowering them

yeah it’s definitely not the data um so

there’s lots of data

about what television shows people watch

from nielsen there’s lots of data

of box office for film so all of our

competitors have have lots of data too

that’s not

the difference is we have lots of people

in our content group that can make

decisions

in a major studio or network every

decision gets

reviewed five levels up and you know

micromanaged

and what we do is we have lots of

independent people

who are then making decisions big

decisions uh

about what content to do and why and

some of them won’t work out

okay some of them will be a mistake but

that’s okay

and because if you get you know orange

is the new black and you get stranger

things and you get the old guard you get

you know these big successes

so um it’s really organized around

distributing power

i talk about how a perfect quarter for

me

is one where i’ve made no decisions all

i’ve done is advocate

influence inspire and

you know i do have to make some

decisions like promoting ted the co

uh ted sarandos who’s been with us for

more than 20 years again i do make some

but they’re as few as possible because

what we wanted to do is to really

have the other people make the decisions

and

again that’s worked extremely well in

content because

then we can attract very talented people

out of cbs

out of hbo because they get to make

decisions and they get to run

independently so

stranger things was obviously this

breakout hit give us

the story of how that

arrived at netflix how did that come to

be made by

netflix well you know there’s a lot of

people

in um hollywood kind of talking all the

time across firms and

agencies and pitching ideas

um and uh in that particular case the

script had been seen by

uh you know many people um

and our team one of our team thought

this is going to be amazing

and again it wasn’t obvious you know

reading the script that it was

uh but you know we’re willing to let

people take bets

and then you know this show uh with its

you know kind of unique

80s retro and the kids you know became

this warm but slightly scary kind of

story that families could enjoy

and it it really took off so and

but you know we’ve had equally number

shows that uh did not

so again what you want to do is inspire

people to take risks and take chances

because the winners are so much more

important you know than the ones that

don’t

uh become big so is that actually an

important principle in it if you’re

running a creative business

expect to have a lot of failure and it’s

worth embracing those

and much better to empower people um

to try lots of things and um and that

that’s your best

shot at getting genuine breakout hits

which is ultimately what will drive the

business

a way to think about it is innovation uh

requires variation you have to try

things differently right

and in manufacturing six sigma all that

stuff

you’re trying to reduce variation the

fundamental manufacturing paradigm

is to reduce variation and the

fundamental creative innovation paradigm

is to increase uh variation but we

haven’t rethought all the other things

like freedom and the things we’re

talking about

from the industrial era so we’ve still

got lots of post-industrial thinking

or industrial thinking influencing how

creative organizations are run

and again all that stuff is good for

industrial companies

and i’m glad they do that for running a

factory

but for creative companies it all that

needs to be really rethought

and and this is just starting that

conversation

how much of your model is dependent on

not that many other people

following it i mean just to take the

policy of

paying a top of market if every company

did that

uh you get massive pay inflation

um why why are you releasing the secret

you actually don’t want other companies

to

to do this let’s think about major

league sports

okay then it’s open and competitive and

um and athletes do move between teams

and there’s

um and people are paid top of their

market you know when they switch teams

and

and that generates incredible amount of

athleticism and ratings

and so just because our competitors are

also paying top of market doesn’t you

know

or even move the market doesn’t ruin it

for everybody else makes it great for

employees

but if your macro question is um you

know

this could be a great trade secret

advantage all the things you do

um you know why share it at all

and we did debate that but the challenge

is we want to make sure

new candidates really know what they’re

getting into it’s not fair to

hire them and not tell them and so

that’s

when we release the original culture

memo uh 10 12 years ago

culture deck um that was for candidates

and we knew if we’re going to give it to

all these candidates of course it’s

going to get out and get public

so you know it’s the operating openly in

this way

is required really for our employees or

our candidates to know what they’re

getting in for

you had a wonderful partner in crime in

terms of developing these ideas and

putting out that culture deck

and and so forth who who was that talk a

bit about her

sure patty mccord um was

our long time and founding uh head of hr

um and i had worked with her also back

at pure software so earlier so we had a

great uh relationship

and which she’s very willing to rethink

things she’s very untraditional

she had grown up in traditional hr at

all the classic companies

um but she really thought there’s a new

ways and fresh ways to do things

um and so she’s been a major driver of

that

um and then um by probably

2012 she had been you know with us for

13 or 14 years

um it wasn’t working as well for us

and we had a lot of uh discussions about

it back to the feedback and living it

and she was like you know if you really

feel that way you know

you should get someone else and we

realized that was true

um and uh you know she left with our

generous severance package and some

people were shocked

but um it for her and for me it was just

living the culture wow and the fact that

you’re saying this now

um is is an amazing example of

what you how you believe canada should

be done that like most

organizations if someone leaves there’s

there’s a bit of a dance and a song and

a story is created and all the rest of

it

your recommendation is say say it like

it is

yeah and people respect again you know

there’s a tension between

kindness and honesty we really we admire

both of those

okay so we’re not trying to be unkind

but we want to give each other

permission to be honest

and thoughtful and you know uh

but not not cruel not uh brutal

uh we don’t that’s a those are all

negatives but you can be

honest um and respectful um

and people do respect them reid

what would you say to

people who say you’re missing an

absolutely key piece of

um um what it takes

to run a team in you know the 21st

century

which is to be much more obsessed about

diversity that traditionally

uh creative industries have been run by

you know a sort of elite well-educated

often white sort of

you know group of of of creatives um

do you how much of an emphasis should

there be

on diversity and and can that actually

further improve performance i think it

can and

it’s a big focus uh for us and of course

for for other firms

um starting several years ago um and

it’s part of a cultural

evolution of how do we be more inclusive

of different ways of being of course

there’s race and gender

sexual orientation but also nationality

we’re a company now that’s about

one-third u.s

customers two-third not in the u.s

and we’re trying to build up our

management team outside of the u.s in

the same way

we’re hiring and developing our leaders

of color

of our top 20 people uh we’re

half men half women so we’re we it took

us a while to get there but you know

we’ve got there now

we’re 25 leaders of color um

so uh you know we’re making a big

difference in that

and trying just to continue to say what

can we do more in this dimension but i

i think it’s a long overdue incredibly

important

um and it’s been a big focus for us

and how easy or hard have you found it

to take your culture

globally um it depends where so

um you know the more similar the

underlying culture is

like the dutch are very direct and you

know that works well

and then the english have a kind of odd

like reverse sarcasm thing they do

and they’re trying to like you know give

you feedback and

you know faint breaks so

and then you know the japanese expect

you to be able to read the air

and it’s like you know wait you said

this and it’s like no you weren’t direct

because we’re so direct and the

brazilians are so relationship oriented

so

the the world is really wonderfully

unique

and so what we try to do is is have our

americans recognize

they have one way it’s not the only way

and that we all need to learn how to

communicate effectively together

and that’s kind of everybody learning

from each other

and then meeting each other part way

there’s one other thing that you don’t

talk about

um that surprised me a bit it just in

terms of attracting and holding talent

you talk a lot about paying a lot

um you don’t talk much about mission um

isn’t

unlike someone like elon musk would say

um

you know the reason i can hire some of

the world’s best engineers

is because you know they’re part of the

creating a sustainable future etc um

is is mission not just as important as

how much you pay people

no i think it is um you know uh for us

it’s entertain the world and

you know how do we bring people together

through all of the stories that we tell

um and that plays a significant role but

i think people also want to be

stimulated on they want to grow in their

career

you know there’s a number of things they

want and we wouldn’t want

mission to be used as a like a way to

pay people less basically um so

but they’re they’re both super important

reed you’ve made a fortune from netflix

and have become

an innovative and generous

philanthropist

talk just a bit about how you think

about your

philanthropy and whether whether you’ve

come up with

some sort of uh equally radical

principles if you like to guide how you

think about the right way to do

philanthropy

uh i’d have to say i’m still very much

learning mode

um i’ve been doing a philanthropy for 20

years

in one particular area which is around

charter public schools

but i’m just learning on a more broad

basis on

uh kind of african farmers or u.s

college

education um you know from my peer group

and i’ve still you know i’m still

so excited by netflix and growing

netflix that you know it’s still i’m in

the phase where it’s a slice of time

but i i want it to be growing and that’s

why

i feel so good about promoting ted

sarandos to co-ceo

and you know sharing that load with me

which will give me a little more time on

philanthropy eventually

um so uh i’m i’m a beginner still

in that field um but very active um

and then and i find it very satisfying

i mean we’re in a economic structure

right now where it seems that

inequality will continue to grow meaning

that certainly that those the wealthy

will probably continue to get

even wealthier i mean do you feel

that there is how do you think about the

obligation of that how do you think

about the opportunity of that

is that is is there almost um is there

more

should there be more conversation about

you know given the vast amounts of cap

private capital that are sitting out

there now

about the best way to deploy that

um versus for example just

revolutionizing the tax structure and

you know giving it more to governments

to spend how do you how do you think

about that

yeah i mean inequality is growing but

it’s just a policy choice

um you know if the people and the

government

wanted to do sufficient taxation and

then

have uh you know free public health care

free public universities

then you’d see a you know a more equal

society

and america relatively uniquely in the

world has always had the tradition of

very high on freedom and less on

equality whereas our european colleagues

have

much more equal societies um

but then we have a high inheritance tax

and generally europeans don’t

so there’s some cases where we’re more

egalitarian

and i think all of us are trying to

learn how do you have a great society

one that we’re proud of

um one that’s uh prosperous uh

and provides people you know with with

real nourishment

reid why did you have a co-author on

this book

well over the years i’ve read so many

ceo pontification books

and i’ve often wondered yeah i wonder

what the reality is in the company

that all sounds good but you know i’m a

little skeptical

and so we wanted to address that so we

hired a very independent voice and

accomplished business school professor

and author

aaron meyer to interview over a hundred

mid-level netflix employees around the

world

and then to write honestly their view

so the book somewhat is me doing the

theory

and her doing the reality as she found

it

and that tension uh is part of what

gives the book

its interest yes that really comes

through

i think she says herself that when she

first saw

the netflix culture deck several years

ago she reacted badly to it she thought

oh my goodness this is a recipe for a

toxic culture and uh you want her over

to participate and i i think persuaded

her a lot of the wisdom of what

you know what you’ve created there well

she’s been a great

uh teacher um and she gave the book

really all of its readability so at the

heart of your idea

is hiring truly great creative people

and then giving them

a lot of freedom they can work whatever

hours they want take whatever vacation

they

want manage their own expense policy etc

um for that to work don’t you have to

have

some kind of pretty robust way of

knowing

whether they’re being effective and

creative work is notoriously hard to

measure in some ways like is that

actually working

how can you tell who’s actually being

effective and

and who is a superstar and who actually

should be given the generous package and

asked to leave

it is super hard uh with creative work

because

it often takes a couple years to play

out if this new idea

is something so uh where it’s measurable

we try to measure it

but that might only be like half i would

say of the creative choices that we make

like

you could look at two shows and see

which one got a big audience

okay or you can a b test something on

the service so that helps

but in many parts of the company like

let’s say hr

when we’re creative and we have a new

policy is it better or is it not

we just have to use judgment and leaning

into that

and then we would talk about it you know

did this thing work out

or you know generally are these ideas

working out

so it’s it’s imperfect i’m sure we’re

making some mistakes in it

um but if you try to if you lean into

judgment

i think it works well so one of the

super talents you’re trying to recruit

for is actually people with the

capability of providing

sophisticated judgment of of others and

really getting a sense of

whether they have the goods or not

absolutely and

for ted and i as co-ceos it’s paramount

for us

to ultimately have good judgment of are

we going in the right direction going

after the

the right customers with the right

approach so there’s a lot of judgment

from us

also and so just um

i think i just want to end by asking you

a bit about the future

of netflix um you know we’ve best just

been through this

pandemic where many people have

transferred a huge amount of time from

the physical world to the virtual world

we’ve spent

all this time on screens and zoo

meetings watching

netflix and other services

and um some people say they’re sick of

it i think other people are shocked by

how good parts of it have been that they

you know wow you know and they’ve almost

seen that

the future could be permanently

different

could the future be permanently

different how would you

like it to be permanently different and

what you dreaming about in terms of how

you could contribute to that

difference so covet has accelerated and

worked from home in particular

our use of video conferencing

significantly it’s been the dream

of work for you know 30 years that you

could

you know work from home and have you

know be in wyoming or

the alps and you know and do your job

but the technology

has not been good enough and it’s only

barely good enough now

so but it will continue to improve so

think of it as it’s a journey we’re

moving towards that

uh and kovit has accelerated it

and moved it more into the mainstream

um but it would have happened anyway it

would have just taken a few more years

so uh i think mostly postcovid people

will go back to

bars and restaurants and sports events

and movie theaters and you know a lot of

our life will be pretty similar but

it’ll be a little more flexible

in terms of doing video meetings and

what’s

the role of netflix in this future are

you are you

pretty determined to to keep the main

focus on

pre-recorded content whether it’s tv

shows or movies or are there

debates and dreams afoot in the company

to expand beyond that for example into

interactivity i think i think video

games in general have been a huge

uh winner in the uh in the pandemic and

people a lot of people have just got

lost in these sort of virtual

worlds do you have a role to play in

that or in other areas that you’re

dreaming about

you know we’re really focused in the joy

in people’s lives and

uh creating that sense of escape and

connection

um that that all of us use entertainment

for so

not really doing news uh you know not

teaching calculus

but many people find the joy from

learning something new from a

documentary about

an issue from coming to understanding

and so

we’re definitely doing a lot of

documentary and non-fiction programming

um and then fun things that could be

real time or not

like uh flores lava you know and says

competition show

that’s uh very cute and then there’s of

course just great epic entertainment

great filmed entertainment

and today we do some interactive

entertainment

that’s you know you can kind of choose

your own adventure style where you

you get to you know figure out what you

want to do that uh

we’ve done with bandersnatch so we’ll do

more of that

not sure on video gaming’s probably you

know nothing in the short term but

um you know maybe eventually something

in that space

um uh right now where it’s console based

and you know it’s pretty specific it’s

pretty specific in terms of

who uses it um and uh

you know it’s not as general as movies

and series in terms of its cultural

uh breadth um so there’s you know a lot

going on in entertainment

do you care or measure

different if you like benefits of

entertainment i mean

there’s definitely a lot of joy a lot of

sort of

compulsive viewing binge viewing um

that you’ve you’ve driven

documentaries you could argue people

learn from and there’s a sort of

educational role

other forms of entertainment maybe bring

families together do you have is there

any sort of discussion internally about

like there are certain things that that

you you give yourself especially big

bonus checks for um i don’t mean

literally but you know

like check marks for um and that you try

to incent

or is it is it all you know if it adds

up to

new subscribers and more hours viewing

then then it’s

all all the same how do you think about

that so we think about it as trying to

serve our members and um if a

documentary

uh is what our member chooses it we love

it that much

okay so uh and we try not to project

our our own particular tastes you know

which skew somewhat elite

um and say this is good for you and and

you know this is uh broccoli and this is

ice cream

um so you know we have ice cream on our

service we have broccoli

uh and we let people choose uh

you know openly and value it by

basically the proportion that it’s

chosen

but don’t people

criticize their own choices in

retrospect as it were

so often people like i have a habit

of choosing ice cream whereas my

beautiful wife

chooses broccoli i actually after the

experience of eating it feel healthier

after the broccoli

aka foreign language documentary uh

whatever um then after the ice cream

of some sci-fi or uh and you know comedy

entertainment or whatever

um do you do you do you ask people

afterwards you know was was this time

well spent are you happy what would you

like more of this

on netflix at all and is that a

different is that a different algorithm

it’s not a different algorithm but i

would say

we do try to understand satisfaction um

and what entertainment like if you ask

people the

what they remember from the past year of

what they watched

and then we do try to uh do more on

shows that they remember okay which made

an impact as opposed to

past the time and you know but

uh think of it as if it was really great

ice cream

and you could remember that taste of

that strawberry ice cream on a summer

day

then that counts for us just as much as

the broccoli

so it’s really about the emotional

impact on the person

that they can remember it well reid

you’ve built an absolutely incredible

company

and i think these these principles are

really

really powerful i think lots of people

are going to

ponder what they can take from them and

so congratulations on on a very very

very

provocative and easy to absorb book easy

to absorb possibly hard to put into

practice for some people

well it’ll stimulate the conversation of

what’s the best way to stimulate and

support creativity

and that’s what we want to do and can’t

wait for no rules rules to get out there

thanks so much for this time it’s been

absolutely fascinating to hear from you

awesome chris thank you