Culture at Netflix
How the streaming giant became part of our life
Entertainment is our basic need. It helps us get away from whatever we are going through in life for a while and puts a smile on our face, makes us skip a heartbeat or even waters our eyes. Our hormones rush through our body and we feel alive. We love being entertained and nobody does it better than Netflix.
Netflix is the world’s leading streaming entertainment service with over 167 million paid memberships in over 190 countries enjoying various documentaries, films, TV series. As of January 28, 2018, Netflix’s website is ranked the 30th most trafficked website in the world.
Founded by Reed Hastings and Marc Randolph, the company did not plan to be a streaming service in the beginning. It started as a failing DVD rental service, barely surviving against its rival Blockbuster in 1997. Imagine if they stayed at the DVD business… As most other successful companies did, they managed to adapt to changing circumstances. Adapting, changing, evolving are necessary to survive.
CEO Marc Randolph tells the earlier stages of the company in his book, That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. According to Randolph, the success of his company lies in its work culture, which distinguished it from many startups that laid out glamorous perks but ignored core values like giving employees freedom and responsibility. However, they managed to fill the gap.
Randolph says to Fast Company’s Marcus Baram:
“Culture is not what you say, it’s what you do. And a lot of Netflix’s culture springs from the way that [CEO Reed Hastings] and I treated each other and how we treated our early employees. And so even though Netflix now is a much, much bigger company, you can certainly see the remnants of how we’d interact back then. You see the focus on deep personalization and helping people get the right entertainment at the right time.”
As the symbol of their culture, Netflix founder and CEO Reed Hastings posted Culture Deck online in 2009. Facebook COO Sheryl Sandberg told GQ in 2013 that “It may well be the most important document ever to come out of the Valley.”. Let’s talk about it and decide for yourself if it is.
What is a Culture Deck?
It is a document that states what is special about Netflix.
The company explains its core values as well as the skills and behaviors that are endorsed in the culture. They make clear where they stand and where they want their employees to stand. It stands as an agreement between the employees and the company, probably more than the contract itself. They talk about expectations, compensation, perks and benefits, and Netflix-specific values.
1. Core Values
They start with core values instead of vague and ignored value statements adopted by many companies. They explain the 9 core values as well as the underlying specific behaviors and skills that come with them. This helps the values to be absorbed more easily and correctly.
The 9 core values are judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness.
I will not articulate 9 of them as the explanations can be guessed easily. Overall, open communication, being able to take initiatives, strong curiosity, and passion, telling the truth no matter what and being humble, helpful, respectful and transparent is endorsed.
Until here, they are like most other companies endorsing values. They too know that it is easy to write values but harder to live up to them.
2. The Keeper Test
It gets interesting here. Netflix does not believe in bell curves or rankings such as cutting the bottom 10% every year. Instead, they apply the Keeper Test.
In the Keeper Test, the management asks the following question:
“If one of the members of the team was thinking of leaving for another firm, would we try hard to keep them from leaving?”
The company keeps its employees based on this question. If the answer is no, they put together a generous severance package and without even a further question you find yourself jobless. It may seem cruel and some employees do not like this approach. Well, I think it is vicious and merciless. Netflix acknowledges that this is not for everyone, especially those who value job security and stability over performance.
However, the Keeper Test has an advantage for those who have good Netflix track records, are top performers but are going through a slump. It helps them get an assessment for their overall performance instead of the near past performance.
3. The Dream Team
One of the things that distinguish Netflix is that it does not believe in the “brilliant jerks” that destroy the company culture, harm other employees yet manage to rise among them. They value teamwork more than anything else and simply, the cost of brilliant jerks to teamwork is too high to afford. Plus, they are jerks, brilliant or not.
They want everyone to collaborate to help people inspire each other to be more creative, more productive and ultimately more successful as a team than they could be as individuals. Not stab other employees while they are still sleeping.
Netflix also wants top performance and there is no doubt about that. Only those consistently achieving high standards get to be part of the dream team. That means employees putting in a lot of effort and yet manage to perform average are not the right fit for the company.
They don’t look at the hours you put in, they look at the results and they have to be shining like the sun, to say the least. Some employees find high expectations too stressful to keep up and leave. The company has no problem with it and they say
“Being on a dream team is not right for everyone, and that is OK.”
I don’t know how you feel about this but I am not a fan of this approach. The constant threat that comes from not being a top performer could make life difficult. And life is difficult enough. Some people love the hardships that come with the job and the stress drives them. Not me. Effort should count too. Maybe I am not Netflix material after all.
4. The Compensation
Netflix pays its employees well. They make a good-faith estimate of the highest compensation each employee could make at peer firms, and pay them the maximum. Let’s just say money is not an issue at Netflix.
Since performance is not assessed, they don’t raise compensation by percentages either, but according to the value of the work in the market. They do not want people to leave for money, and they are willing to pay for it.
This one sounds unusual. The employees are encouraged to hold interviews with other companies so they can learn the value of their work. Plus, it is safe to talk to their managers regarding the result and they are sure to be compensated accordingly.
5. Taking the Trash
Netflix tries hard to create a culture where every employee feels such ownership and responsibility that they pick up the trash. Did they cut costs when it comes to hiring people for cleaning? No, that’s not it. They want people to solve small issues even if they are not the main responsible.
This empowers people to take action as they see fit and the company endorses this. It is a good feeling when employees know they are the decision-makers, not their managers only. Many successful companies adopt this and call it empowerment. Microsoft takes it a step forward and declares its mission to “empower every person and every organization on the planet to achieve more”.
That being said, they make it clear they are not a family but a team to set the standards. Netflix CEO Reid Hoffman, Ben Casnocha and Chris Yeh even wrote a Harvard Business Review article titled “Your Company Is Not a Family” in 2014.
They explain in detail the characteristics of a team and a family. While family accepts every flaw, cares for each other no matter what, it is not the case in a team. Employees have to be able to keep high standards to be part of the team and the company.
I wouldn’t prefer to be in a company that claims they are a family but does not act as a healthy one. There are many companies where this occurs, many examples of how corporate companies layout most of its employees in the blink of an eye during hard times and still claim they are a family.
It feels good to be told the truth, upfront, even though it is not what you want to hear sometimes. It helps you put things into perspective and have realistic expectations.
6. The Netflix Perks
Here comes the exciting part, the non-traditional benefits, and perks!
First of all, every document is shared and can be accessed by anyone in the company to read, comment and use including strategic documents, product tests, and confidential records. They admit to having leaks once in a while but rarely. I imagine the employees feeling trusted and empowered is far more important than a few exposures.
Secondly, for expenses regarding travel, entertainment, and others, they just say “act in Netflix’s best interest”. Employees can expense without getting approval from their managers and are trusted by the company. Is staying at Four Seasons is in Netflix’s interest?
Thirdly, there are no rules or forms to take a vacation. That means, as long as employees perform well and do what they got to do, they can take an unlimited vacation. They acknowledge that employees have to work at odd hours too. If they reply to emails in the middle of the night, they should be able to take a sip of cocktail in Bali to rewind.
Fourthly, employees are given a choice between salary and stock options. They can choose one over the other or a combination of both and determine how much risk to take. Plus, the employees feel more ownership when they purchase a portion of the company. Those who purchased stocks in the past have certainly filled their pockets as the company grew bigger and made huge amounts of profit.
Additionally, people are free to leave at any time, without loss of money. This keeps the employees flexible to pursue any decision they would like to take.
Finally, there is no clothing policy. But that doesn’t mean people are naked. Or are they?
A bonus perk. I imagine they would get free Netflix service. Maybe if you are a good kid, you can watch it after you finish work.
Funny how things change and evolve. What started as a DVD rental business, turned out to be the content-production industry and later today, it is a textbook example that sets the standards. The Culture Deck has been a strong case study for MBA students, an inspiration for many startups and an example for existing companies including Richard Branson’s Virgin Group who let Virgin employees take as much holiday as they want.
Overall, this is the culture of a creative industry where the challenge is to keep up with innovation. So, understandably, they want to minimize strictness and decrease rules to make room for spontaneity and creativity. They can, however, tolerate the errors caused by no-rule culture because the gains by high productivity and increased creativity outweigh the relatively few problems.
That being said, this culture does not apply to all companies. There are different dynamics in each company as well as industry. So, this is not a one-size-fits-all solution to all our problems in business. However, there are good lessons that can be learned and applied to every company. One example could be how they empower their employees, give them freedom and trust them to do the right thing. Another could be how they value teamwork over everything else and do not tolerate the high performing brilliant-jerks. There are still many of those that destroy company cultures everywhere.
Netflix not only disrupted the streaming business and made a huge profit out of it, but it also managed to “invent” the term Netflix and Chill. This may sound cool among young generations but it is more than just that.
Associating a brand with a feeling places the company in the Ivy League of brands, let’s say, and places the company in our hearts and our minds.
Think of the most successful brands today. Many offered to address a need of ours. Apple associated itself with the feeling sexy, Google did that by appealing to the curious inside us who wants to know more, Amazon did that by attracting the hunter-gatherer homo sapiens that remains inside us and lastly, Facebook did that by appealing our need to contact with others and socialize.
Each of them has strong connections with a need, a feeling we would like to attain. That helped them enter into our lives and stay there for a long time if not all. As they help us fulfill our needs, whenever we want to feel a certain way, we go crawling back to them.
Scott Galloway even calls them “The Four Horsemen” and talks extensively about how they do what they do to become so central in our lives. If you are interested, his book “The Four” is a well-thought, cleverly developed book that elaborates on the topic.
Where does Netflix stand in this? What feelings do they fulfill, and pain points they undertake? They address our need to chill and take a break from whatever we are going through. They fulfill our need to be entertained and feel good. That is a powerful need we all want to feel and we want it frequently. And they do it well.
A tech enthusiast interested in innovation and entrepeneurship