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