Netflix co-founder Reed Hastings came to believe that corporate rules can kill creativity and innovation. In this latest edition of the Freakonomics Radio Book Club, guest host Maria Konnikova talks to Hastings about his new book, No Rules Rules, and why for some companies the greatest risk is taking no risks at all.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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We are asking Maria to take a turn as host. That's the episode you are about to hear today's author is Red Hastings and no rules, rules, Netflix in the culture of reinvention, which Hastings CO wrote with Erin Meyer? We are going to keep playing with this format, see how much we liked it. How much you liked it? The next book club episode over planning will have me as host again, if you'd like to read that book ahead of time. Our selection will be inside of a dog what dog see smell, and by Alexander Horwitz? It was first published run a decade ago, but with so many pandemic puppies out there, it is more relevant than ever plus. I just really like this book. Also, if you want to send a dog quest for Alexander Horwitz. Our email
is radio at for economics, dot com use the subject line dog. If you want to send feedback on the episode you are about to hear same email, radio at for economics outcome. Subject: line Netflix as always thanks The feedback, and thanks for listening and now here is Maria Conic over in today's free Economics, radio book club episode- everyone knows Netflix, especially these days is our constant companion. It has one hundred and ninety three million subscribers in war, one hundred and ninety countries, with roughly thirty eight percent of those from the United States and Canada these past months as other industries struggle Netflix, has been booming. Everyone wants to stream. Everyone wants to Ben
everyone wants to escape, but it wasn't always like that once upon a time, Netflix was pretty much a shipping in receiving business. Sending dvds to subscribers who'd, rent them for a couple of days and return them. It was considered such a crazy business idea, the movie rental giant blockbuster. Yes, the blog buster that declared bankruptcy and twenty ten didn't want to buy it when Netflix, what public in two thousand to it, had just six hundred now subscribers and the fledgling company was losing money. Today it has some eight thousand six hundred employees and a market cap of two hundred and twenty eight billion dollars. So how did we get from there to hear where did Netflix come from and how was it able to thrive
I'm Maria conduct Over- and this is the free Economics radio book Club. Today, join me in a deep dive into no rules, rules, Netflix and the culture. Reinvention. The new book from Netflix Cofounder, Red Hastings and noted business, Professor Erin Mire the book is not so much an auto biography of Hastings or even netflix his origin story, really more of an eye. Opening look at the unorthodox, even a little and emanating way that Netflix runs for the most part, you want to make people feel like if anything ever get fired for being cautious, I'm happy
from structure and governor production is. This is economic radio the had explores the hidden side of everything with today's She s house, Maria Conical bath, before there were dvds and streams, there were vacuum clean there's. What were you like? Growing up give us a little bit of that of the red story before you became Red Hastings Netflix as a kid, I grew up with my two sister said, and I would tat was not particularly business oriented. You know we had the typical while lemonade stands and telling cinnamon sticks and things like that, and then at the end of
high school. I got a job selling rainbow vacuum cleaners and that's what really got me interested in business. It's just seeing how that company was operated and how far it was to be sharing it with other people. And I loved it so much that I deferred college for a year. So I mean, I think, you're the first person, I've ever heard say that you loved going door to door self vacuum cleaners. What was about it that you love yeah. You meet tons of different people. This was the early eighties, so it was a more friendly I'm in a way different conversations with different people from all different walks of life love. Fellow fellow salespeople, you know, customers in the product is really pretty girls pretty Basic Hastings, whose from Boston eventually did give up his back himself job too good a boat in college. In Maine he decided to study math and soon that
fish and led him to the peace corps where he taught math ties. Pillars in rural Swaziland. Why did you decide to switch gears so much and then to teaching mathematics if you loved the original else, John, you know, and I was in college. I got seduced by the thing that I was differentially good at which was math, and then being a mouth teacher was not easy. That was a lot of work of motivating and understanding. Kids and I was not intense math. It's really tried to help a bunch of kids. Get excited was always going to be the peace corps. Is that went through to teaching or did you want to teach period and ended up peace corps, no joke that if the peace Corps had sent me to be a fish farmer which could have happened,
You know I probably be working on agriculture policy. Now, after his two years in the peace Corps, Hastings went back to school this time to stand for, for a graduate degree in computer science, he wanted to study one area, in particular artificial intelligence. I thought yeah I might be a nice blend, not ass, dry, ass, math, but more intellectual and channel Launching then, the classroom teacher. And so I got fortune of hitting the first a bubble in the mid eighties at the right time. You also have said before that for it was really where you fell in love with computer programming. How did you find programming and why did that under being there, direction that you wanted to pursue when you started becoming more entrepreneurial minded? Will you got it those two a lot of things in graduate school. All I had to take a lot of computer science classes and I loved them.
You know it was easy to work all the time because it was enjoyable like a big puzzle and that really lead to more a first company, you, pure software, and the great thing about the front. The product was very technical software, but the key thing was that culture and how we tried to build that as Hastings color their errand. My rights and no rules rules. Hastings openness about his mistakes that pure software make it sound ass though the company failed, but pure software sold and ninety nine the seven four seven hundred and fifty million dollars, and it was that sail that helped Hastings fuel his next big venture Netflix still Hastings is open about the cultural failures of the company and ass. He looked for his next big idea. The experience of running pure software
helped him to realise something. He didn't necessarily want to be a c o again. Instead, he decided to try out the investing side of things pouring money into a number of companies and joining their boards, but he never stop thinking of new ideas ideas. He'd, often bounced back and forth. With Mark Randolph, a former colleague one day, the do who came up with an idea to rent dvds through the mail and like that? Netflix was born right and ass became the company's first seo, but nineteen. Ninety nine Hastings took over. There was clear that it was with a big opportunity and that we need to raise a lot of capital, and that would probably require Me has ceo, because I had a track record. So as more out of necessity, then you deciding, I really really want to do this again
and I was super excited to do at the yes. I think that's right. If it had been, you know, sailing along on its own, that are probably wouldn't have and theirs, part of it. That was just the joy of getting back in and having a team and from that we evolved to doing subscription dvd rental thou originally the twenty bucks a month for three dvds at a time as many as you want it, so you guys went back and forth for a while with different ideas. What was it about this one that actually seem to stick and I made you actually decide hey. Let me mail this dvd to myself and see if it's actually gonna arrive, and why did you decide after you saw that it was feasible that this was the one You weren't showed that it was the one. Every new business has a bunch of risk around it. Dvd was light weight so is easy to male compared to its predecessor. The chest sat so and opened new,
opportunity and at the time Amazon was shipping lots of goods, and it was clear that this was a big opportunity and then eventually we wanted to be able to stream the content, and we thought okay. If we can build, you have a great use. Or interface and build a subscriber base that we should be able to migrate from shipping dvds streaming, which You know took us ten years to start caused a ten year, starting in two thousand and seven and now were close to two hundred million streaming and we ve got, just under two million dvd. So it's almost you're doin deference today could someone else have founded Netflix here? I think lot poster could have done. You know they were big on renting. Firstly, nature a dvd and certainly other people would have done streaming without Netflix. So was streaming something you had in mind before you founded networks. Did you see this is somewhere that the market was about Actually going to go yet was
they are even back, then the internet will continue to get faster and faster and you'd be able to do streaming. Video eventually, which is why we need the company Netflix or not. You know, dvd by mail that come well clear to you, but you recount, king to blockbuster, and it was certainly not clear to the whole industry that streaming was the future. You know. That is true. If you grow up doing stores and black posture was really really good at stores, you become specialized about that and blockbuster was over optimized for a single thing, and so we have to watch out as leader that you become so good at one thing that you are not good at this it is necessary to continue to thrive and This is where you know it really helps. I think, to have a model where companies organised around flexibility rather than
fighting the last bit of efficiency of some current model here, Now is Red Hastings reading from his new book, co authored with Aaron Meyer called no rules. Rules bought Your story is not an anomaly. The vast me Georgie of firms stale when their industries shifts Kodak failed to adapt from paper photos to Digital Nokia failed to adapt from public funds to smart. A well fail to adapt from dial up internet broadband and my own first business. Pure software could not adapt to changes in its industry either because our company called, I wasn't optimized for innovation or flexibility. I started pure software in nineteen nineteen. At the beginning. We had a great culture. We were a dozen p creating something new and having a blast like me.
These small entrepreneurial ventures we had very few rules are part. The seas, inhibiting our actions marketing guy decided to work from his dining room because it helped him think to be able to poor himself a bowl of lucky Johns whenever he felt the urge he didn't happen. Get permission from management? This earlier version of pure was flexible. Everyone could work. However, they wanted to maximum what they were bringing to the company like a charm may not be my cereal of choice, but the whole thing Seems rather nice, then things started to change. Here is red Hastings again, then pure software started it as we hired new employees. A few did stupid stuff leaving to errors that caused the company money each time this happened. I put a process in place to prevent that mistake from occurring
for example, one they are sales person, a pure Matthew Travel to Washington DC to meet with a perspective, client the client was staying at the five saw, Willard Intercontinental Hotel, so Matthew did too at seven. Hundred dollars and night. When I found out, I was frustrated. I had our hr person right or travel policy outlining how much employees spend on aeroplanes, meals in hotels and Clearing management approval to go beyond the specified spending limit policy, controls became so foundational to our work that those who are ETA colouring within the lines were promoted, any creative mavericks, felt, stifled and went to work elsewhere. I was sorry to see them go, but I believe that this was what happens when a company grows up, then two things occurred. The first is that we failed to innovate
We have become increasingly effective and decreasing really creative in order to grow where to purchase other companies that did have innovative products that lead to, or business complexity, which in turn lead to more rules and process. The second is that the market shifted to survive. We needed to change. But we had selected and conditions are employees to follow process, not to think freshly or shift fast. We were unable to attend. And a ninety. Ninety seven ended up selling the company to our largest competitor. So. What did Hastings learn? I asked him: how exactly is Netflix different from its predecessor? networks of courses had tremendous change. From being you know, domestic care dvd by email, renter, two leading and strict
around the world? You know I really has proved out that focusing on flexibility is the key. And it's really about that. No rules is the right way to go or no rules rules, and that, of course, is not a simple is just taking away the rules. You gotta figure out some other way to have people be aligned to work well together. This book is trying to be a cop sure view Shen to other organizations to think about different ways to operate. So we ve had that very traditional paradigm of the factory forever and you know now, with creative work, there's potentially other ways to think about things which focuses on flexibility rather than efficiency. So what is this famous culture, Netflix that has shepherded it from a fledgling mail and dvd company that blockbusters scoffed at buying back in two thousand to the industry leader
innovator that we know today. What does it mean to be a company that runs on no rules rules. It also from a moment in the early days of Netflix when the management team had to do the one thing that most teams want to avoid doing fire a huge portion, of its staff in the spring, two thousand and one crisis struck the first internet bubble, burst and scores of dot com, sailed and vanished. All venture cap, total funding stopped and we were suddenly unable to raise the additional. Funds we needed to run the business, which was far from profitable morale, on the office was love and I was about to get lower, we had to lay off a third of our workforce. I sat down with Martin Patty Mccord body had come with me from pure software and was the head of human rights,
sources and we study the contribution of each employee. We didn't have any obvious poor performers, so we divided the staff and to bypass the eighty highest performers who we would keep and the forty less amazing. We let go. Those who were exceptionally creative did great work and collaborate a well with others went to me the early into the keepers pile the difficulty was that There were many borderline cases somewhere gray, colleagues and friends, but did adequate work rather than great work and others worked like crazy. But showed uneven judgment. I needed a lotta handholding a few weeks, sexually gifted and high performing, but also complainers or pessimists. To them would have to go. It wasn't gonna, be easy. The days before the lay ass, my wife remarked how
on edge. I was, and she was right. I was worth the motivation and the office would planet. I was convinced that have to ride. Let go of friends and colleagues. Those who stayed would think the company wasn't long to employees and was bound make everyone angry even worse, the keepers have to shoulder the work of those that go, which seems certain to lead to bitterness we're already short of cash. Could we bear a further collapse and morale the day of the lay offs arrived and it was awful? as expected. Those who were laid off cried slim doors and shouted, and frustration by new It was finished and I waited for the second half of the storm. The backlash from remaining employees but despite some tears, invisible, sorrow, always com, then, within a few
weeks for reason. I couldn't initially understand the atmosphere improve dramatically. We were in cost cutting mode, and we just go a third of our workforce. Yet the office was suddenly buzzing with passion and energy and ideas. A month later the holidays arrived dvd players were popular that Christmas and by early two thousand and two hour dvd by male subscription business was growing rapidly again, suddenly we're doing far more work with thirty percent fewer where employees to my amazement, those eighty people were getting everything done with a passion that seemed higher than ever. They were working longer hours, but spirits were sky high It wasn't just our employees are happier had wake up in the morning and could not wait to get to the office. In those days I drove Patty Mccord to work every day
and when I swung up to our House and Santa Cruz, she would practically leap in the car with his big, grin greed. What's going on here? Is this like being is this. Thrilled unaware off Patty had put her finger on it. The entire office felt like it was filled, people who were madly in love with their work for wheat, Hastings talent, densities. He first step to being able to let go of traditional rule structures higher the best people, people, you trust people whose judgment we trust and then in power that don't tell them what they I can't do let them decide for themselves, but talent can't come with baggage. I was struck by a phrase that year
is that you have a policy of not hiring any brilliant jerks. I would love for you to talk a little bit. More about that, because I think that we live in culture where people do tend to admire brilliant Jackson. So what if they're a jerk while were very Megan teamwork and working well and groups to be able to accomplish things and the problem with the jerk is very hard to work with and so we feel like itself better model to require you know personal responsibility and respect and to have good team relation, as a mandatory aspects. They have to be both talented and good teamwork, and most people want to be good team players or social human beings. So sometimes they just haven't, had the right schooling or instruction on effective team behavior, but ultimately we don't tolerate the jerks brilliant or not. What about it?
their content creators? What about of their one of the hottest show runners in the business I'm sure, on the fringes, both with creative people and also non creative, I'm sure there's some turkey trickiness that we have to deal with, but as a whole, what we want to do is have our employees What really well, with each other, to be able to be very honest with each other, including honest with me. Two incense behaviors their help us navigate very rapidly. Changing entertainment landscape it's not just- Hiring the right sort of people, of course, and making short maintain the right sort of environment is also about how you empower those people, once you get them to come on board and one of the key tenets of Netflix is to get rid of them
My controls you'd come to expect in a corporate environment things like expense reports, approvals for big spending decisions, vacation policies. The idea is to entrust every employee to decide for themselves. Netflix, isn't a hierarchy in the typical sense of the word in Stead Red Hastings, thinks of it as a tree, but not in the way you might think in a tree. The trunk is supporting other branches which do all the work that leaves the photosynthesis nutrients, and so we look at our leadership team as the trunk supporting all of the real work rather than being at the top an organization sort of like the king, but what happens if the treaty is A giving tree She has read her over soaring lets. You remember that
giving tree? Doesn't it just before his eyes? It puts all the nutrients back into the room, it does it as a whole play we last as long as the Sequoia say, Meantime, a tree has built mechanisms for coordinating its activities. Photosynthesis growth, nutrient exchange, Let us Netflix, maybe a tree and spirit In reality, it's not living, interconnected organism. How do you make sure everything is functioning as intended? Something that I got Very nervous about very early in your book was the element of no rules, rules worry you, dont have vacation policies and you dont have this policy, and you don't have that policy. I'd feel like. I can't take it creation if there are no vacation days- and I know that
you model behaviour, obviously, but how do you prevent people from burning out because they want to accelerate love their job, so they want to keep going Sure the vacation policy is one specific thing, but its illustrative of the broader structure. The book which is Erin goes in as the critic. Kind of channeling. The reader wait. A minute. Wait a minute wait! A minute. Erin is again Erin Meyer Hastings CO author for the book she conducted over two hundred interviews with current and former Netflix employs to learn about the company's culture. Her voice offers an outside perspective on the good and bad of Netflix as culture, You know it's not there great having no vacation policy. Does that mean no vacation? You know and then tries to really hear from people what those concerns are and, of course, I
Emma strong role model taking Lhasa vacation, and I do some of my best thinking, I'm on vacation, so now that we ve had it for a decade, we figured out a pretty good balance where we have very few people who abuse it. Inside of you now go away for a year and then we have very few people who don't take any vacation cause. I don't feel licence to said, that's an example. A number of hours that you work in a day is also not formally deregulated people, get an approximate who shall understanding, and that seems to work pretty well that social issues, standing is another key element of the culture you find in the Netflix officers, one where context a set from above will
Leaders led through their own behaviors, so that people can get a sense of expectations. It's the opposite of, do as I say, not as I do. They don't actually say anything they just do and they expect others to do the same. He don't set explicit, regulations instead, you still an ethos where the norms of behaviour of the company are clear, and you trust your people, too Although those norms, Hastings offers up a hope, that a good example of how someone at Netflix might guide an employee to say, conceptualizing add, highlighting Netflix has been job quality and how easily that guy hence, can go awry control is when you tell someone specifically to do something, let's camp so that advertisements that makes us look bad, and then context would be in our generally trying to connect with consumers. What is me
king us do this advertisement and really trying to understand what the motivation is and then, if the person says well that you keep talking how we want to be, you know, see tv kind of essential viewing. So that's how I came up with this addiction advertisements and you could see. Ok, I can see that the context that I sat, which, as we want to be seen as essential in I wasn't specific enough and then tat. We want to be seen as a part of everyday life, but not general. Eating you know addictive behaviors and that I, to improve the context and thus, by improved in this context. It would probably have good applicants in many other parts of the business. In addition to say this, doing the advertising leading by context an attractive idea to be sure who would our
you against freedom of choice in a global sprawling organization. Are there any risks to this type of leadership or is risk exactly what Netflix is trying to cultivate number that all of Netflix is managing on the edge ass chaos am we are coming to cover we'll get into All of that right after this. For economics radios sponsored by square. If you are Business owner square has tools to help. You shift your business and stay connected to customers, no matter what you're selling its easy to set up an online store with pick up delivery and shipping swear, can also help to promote your business with tools, for email, marketing and social adds squares tools, all work together? All from one place- and that's just the start,
see everything square can do at square dot com. Slash, go slash for economics, when you're a pro you gonna do a little bit of everything a little little and even a little else have something of works as hard as you do. That's why bells bar has a pain for every job, every room, every time vows bar you make it happen. We make it possible prose pitiless today and told your programme about getting up to ten free, gowns avowal sport through a paint trial programme exclusions apply see felspar product com for details. Today we're talking with Red Hastings Kofoed. And now co, ceo of Netflix. His new book rules rules which he wrote. With business school. Professor admire unpack. Swine Netflix is the successful glow
mobile content, machine and streaming powerhouse. It is we heard earlier here that Netflix likes to lead with context that its leaders. Try to educate on what kinds of decisions would help Netflix thrive employs, can and are encouraged to call some pretty big shots on their own. For instance, content buyers Pull the trigger on multi million dollar movie or documentary deals without supervisors approval, but leading by context only works in certain types of corporate structures is hard to imagine, say hospital running without specific protocols in place. If everything has to be coordinated by the minute. You need clear rules and regulations and sell Netflix is deliberate about how it sets up its organizational structure,
you know, one form of efficiency is coordinating all the tactics, so everybody knows what's going on and then the problem is, as you get big tickets harder to do, units flower, so another way to operate is more loosely coupled with lots of different departments, are doing different thing, and then the danger is that there are going in different directions, say you want them to be aligned but not tightly coordinated, and to do that. You have to really set a lot of contacts to use a lot of examples, a lot of storytelling, but remember that all of Netflix his managing on the educate ass. I tell you wanna, be right up to that edge where words dynamic, industry it has not fallen into chaos, but it's kind of right on the edge of it That's only appropriate for some types of businesses could do so, something happening that would make you go over that
Some area does that something you're afraid overdue. Think that you ve got a pretty good tightrope walking technique down I'm sure you know that in certain groups we get too close to the edge and then move to pull back and be more clear about the context of what we're trying to do. So it's definitely like the blind person. The area where the stove is in the room you gotta be eradicated, little bit burnt and feel the heat wherever you go Many companies today are focused on air prevention, but to Hastings Not all that risky to allow employees to make a mistake, its risk here, not to know
risk, taking would mean Netflix losing out on top talent, overlooking a shifting marketplace and failing to conceptualize innovations as Hastings rights. Netflix is less like a perfectly synchronize orchestra, with a conductor directing how musician should hit a note or hold a beat it's more like a jazz ban. One were all the musicians, know the rules and how to play, but nothing is script. Land. I was fascinated by the analogy and I think that jazz obviously sets context and everyone has to respond to each other at love. For you to talk a little bit about it. If you think about a conductor, an orchestra at incredible thing, the level of synchronization the level of precision, and it creates great So, let's just say, symphonies an orchestra are amazing. Ok and then there's the renegade level branch and music and me you know people are ripping off.
With each other and responding, and everyone is highly skilled to be able to do that. You need incredible practice and agree. Here and we model herself more on that its less on top down, precision and slice. On efficiency in order and synchronization, and so it's a little bit chaotic, also very beautiful in a different way. It's a beautiful thought indeed, but in practice when, you're talking about an organization as large and multi faceted as the one Netflix has become. How does it work in reality, every musician needs to be performing at peak constantly, reading and reacting and being ready for that. Virtuoso improv solo doesnt that take a toll. Wouldn't you feel the pressure form no matter what
if I'm someone who's a high achiever, whose incredibly motivated, whose kind of at the top of my game and loves what I'm doing. So, how do you prevent me from just basically killing myself? I'm working too hard and I want to ensure sure that I dont get fired this now that I'm scared about getting fired just I want to keep showing you just how good I am Well, the yellow, to agree that you ve got manic tendencies and you tend to be. You know, obsessive about all those things, I'm sure it's hard, but what we tried to do was reward p all? Who you know, showed good balance and accomplish a lot and are find a run. The marathon in terms of sustainability. How are you able to accomplish that yourself who allude to some rocky starts where you at issues in your marriage that you had to kind of work through and that another did seem to be a work. Life balance issue. Yeah. I mean these rather stories from my first company, you, your software, where,
a lot of things that didn't go right. Both my family life and work life and it was out of some of those painful lessons that we really started thinking about the culture at Netflix and in how many ways what this book is is all the things I wish. I knew when I had started that first company and about the importance of being direct an honest in a professional setting hands. They began its story after story about the problems with not being honest and the benefits it being in a more honest than most people, Tipp of the Ark companies in my first few years as CEO, a pure software I managed to take analogy well, but I was so pretty measurable at the people, part of leadership- I was conflict avoidance people would become upset. If I addressed them directly with the problem, so I tried to work around issues when they came up. I traced
personality trade. Back to my childhood, when I was a kid my parents were support though, we didn't talk about emotions in our house. He didn't want to upset anyone. So I avoided difficult topics without much thought I carried this attitude? Over into my work, a pure software, for example? We have very thoughtful senior leader named Aki, who I What was taking too long developing a product? I got frustrated and upset, but instead of talking with Turkey, I went outside the company and struck a deal with another set of engineers to get the project going when he learned what I done he was furious. It came to me and said: you're upset with me. You go around my back and said he's telling me how you feel Aki was dead right, the way a handle? The situation was terrible,
I didn't know how to openly talk about my fears. The same problem affected my personal life by the time, pure one public in ninety. Ninety five My wife and I had been married for four years and we had one young daughter. It was the peddler my professional life but I didn't know how to be a good spouse the next year. When pure acquired another company, three thousand miles away. It got harder I spent half of each week away, when my wife expressed her frustration? I would defend myself saying that everything I did was for the good of the family. When friends would ask her, aren't you excited about red success. She wanted to cry. She was distant from me, and I was resentful of her the problem around when we started going to a marriage counselor, he got each of us to talk about our resentments I began to see our relationship through my wife size, shaving care.
About money. She'd met me a night. In eighty six at a party for return. Peace corps volunteers had fallen in love with a guy who had just Two years teaching in Swaziland. Now she found herself to a guy obsessed with business. Success was never the excited about giving and receiving transparent feedback help so much. I saw I'd been lying to her when I would say things family is the most important thing to me. Missing, dinners at home and working all hours of the night. And now I see that my words were worse than platitudes. They'd belies. We have both learned what we could do to be better partners and our marriage came back to life. With the married now for twenty nine years and have to grown kids afterward. Tried to take the same commitment? To being honest back to the office, I became
urging everyone to say exactly what they really thought, but with positive intent, not you attack or injure anyone, but to get the feelings, opinions and feed back out on the table where they could be dealt with. As we began, giving increasing amounts of candid feedback to each other. I saw the getting feedback had an additional benefit. It pushed the performance of the office to new levels, feedback is crucial in the world of Netflix. Your expected tonight just receive it with a smile, but be ready give it at any point to everyone, your subordinates, your superiors maybe even so, when you don't work with directly, it can seamen
terminating to an outsider like me almost caught like, but it comes from a place of personal experience, because Hastings has made mistakes, one. Perhaps the single largest mistake in Netflix corporate history. In September, twenty eleven after Netflix streaming servers had gained its foothold. The company announced that it would spin off its dvd service into a platform called quick stir. The idea proved extremely unfair pillar and Netflix, pull the plug on the concept shortly after the announcement. It's interesting that even in a culture that as open as yours, it seems that you ve still been evolve because urban moments where in retrospect people said they wish they had spoken up and they did at my quicker, more costly involving them, and I tell you employees that you know. Sometimes I get asked. How are we going to preserve the culture ass? We grow and I say the goals not to preserve at its to improve humans
hierarchical organization are naturally deferential and you kind of get that model that the all of your job is to please your boss and we try to reorient PETE although the goal is to serve the organization- and you should tell your boss what you're doing, but ultimately, it's up to you to figure out how to best served organization in the customers. We know I'd, say it's twenty two. I think so tell us a little bit about pre quick start lunch. What was going on, because I think that this is an opportunity to eliminate some of the cultural thinking. Around feedback quicker involves operating dvd and streaming into two different services, and we were preparing obsessed about doing mad so that we can focus on the screaming service and it also involved a sixty percent price increase for consumers to go ten dollars to sixteen and
A number of leaders in the company were very scared that, though customers would have quite poorly to this and We knew that there will be some tensions, but I vastly underestimated, because I could see how important it was to our long term survival to separate those two back clouded. Essentially, my judgment about how normal people consuming Netflix would feel about it, and there was a number of executives who were panicked, but they thought our probably readers. Re he's been right before and they didn't know that their peers were also very nervous and afterwards, when we all compare notes and how did this happen We realised that he has all the peers had been talking. Then they would have all ganged up on me and prevented quicker. So we instituted something we call farming for dissent were on these big decisions. Everybody has to
right down in public and a shared document how they feel about the idea in there. Judgment about it. So that sort of public accountability or about what they think and no one's gonna be perfect on. It helps- when quick start proved a colossal failure. The mistake was Hastings own. I asked him what, if it's in him, ploy that screws up on a massive scale, for instance, what if the heat hugely popular show, stranger things whose second season costs netflix the eight million dollars per episode had flocked. What? Then, there were four that even our biggest shall answer, but most one percent of our budget and viewing so I'm Clive, stranger things as a great success, but we ve had other shows that haven't been, but quicker was a pretty
big one. You know if you want to judge by the stock market, was she just one task? I think our stock went down. Seventy five percent over thy here, so that was a pretty big one It's one thing to say: you'd never hold someone responsible and you won't get fired for failing, but I mean if I worked at Netflix, I met think. Well, maybe I will get fired if it's a big enough failure, if I actually screw up enough money I do agree that there was a big enough failure. You'd have to question. Why were we choosing to have you still do that thing, but you're not going to support a lot of in a way If you do, that very often are for the most part you wanna make people feel like if anything they would get fired for being cautious, but it- avoiding firing not very motivating. We really want to work on the inspiration and How can you make a real contribution? And yes, just like when you're a professional athletes, you could get injured on any game, but if,
You spend your time and energy focusing on what. If I get injured, you, never gonna play your best, so you have to play light and you have to will yourself to not think about those injuries, even though they can happen so think of thick evermore like out we're trying to draw out the best performance and people. So they can play epic games, Epic game, It's not for nothing that Hastings use Netflix, not as a family, but as a sports team. Each position should be filled by the best at length and everyone has to be the best. It's a tough ask, especially when your team goes from regulation sized to spanning the globe. How does it change running company, that's the underdog to running a company? That's actually the leader and the darling and the one that everyone looks to you. Gotta, be a little more
careful and you gotta, be a better role model and be more consistent when Europe, you know quite the leader you to Isabel, seven times as much. Viewing shows us that you know we're in the top five. So dear point is valid. Witches were one now the leaders, so we We try to think through. You know how do we help each culture have a voice thinking about how are we genuinely good for mexican storytelling and how do we find great makes stories to share with the world or spanish our career, that's not the only thing a leader like Netflix needs to think about. Companies need to plan for stream circumstances. But if nothing else the present moment, illustrated the limits of any future planning. Covert, of course, has been a boon at least now for the streaming services, but it made me wonder how Netflix would handle a change of a similar scale. That was not act
chile conducive to its core business. We ve been very fortunate. During covered the people I'm staying at home, watching entertainment and sarbanes. This is grown faster than ever. So it's more that challenge of hiring any other challenge. I I recognise covered, is not the best example in the sense that Netflix is growing right now, but your job is to see those things potentially. So, given that your culture really is so talent dance, how do you go about dealing with that? If you do have to actually contract was very hypothetical. We went public at two hundred people about twenty years ago and now we're about eight thousand, so negative things can happen, and you have to deal with unforeseen circumstances. The basic thing that we're trying to get through is investing in the human capacity, not so much and rules, but in good judgment, and that makes people a little nervous causes
necessarily objective, and I say not judgments, not that objective judgment his judgment and so it's leaning in two judgement and developing the people they can handle either very rapid growth or potentially shrinkage or- various competitors or new opportunities. So how does covert actually a fact that culture lies the fact that you can't travel anymore. The fact that so much of the Netflix culture is about communication and feedback, and all of these interactions, I can only imagine that is more, go to replicate that in a zoom environment than it would be for businesses with slightly different cultures covered, is you know huge terrible thing but again organization alley were really set up to adjust to challenges and opportunities. And so as an example, and that first weekend you know we moved hundreds of workstations into people's
homesteader animator Sue, produce animated feature, films and I dont even know about it. I told about it about a week later. What about the original content with all of the shutdown we're fortunate to be back to producing in filming in Europe? in Asia and little bits in: U S still gotta ways to go, but were run, forehead in Europe, which is great for us great, I think people will be very happy to hear that who are scared, that there will be no new. Tell us, Two, I think it's nothing is getting found. The crown he's coming this winter, so aerial get their fix, but maybe this can also serve as a time of reflection. Here, its changes can happen in a heart? Beat you can't plan for them? they. Can you react to them, and this is just as important a question to ask: do you want to react to them
what do these changes hurled? The market should so profound that you want no part in it. What if it's a kind of ships? That is, these things to take a chance on an idea. No one wanted a part of not even blockbuster are you still feeling that inspiration, yeah for me, you were just beginning, you know were strong in the U S, but were so so small around the world, and we just have an incredible opportunity to share stories, and we want our entertainment, really bring people together and can act You know see each other and all kinds of ways, not only between countries, but also between social classes between genders between raises an entertainment can play such a positive role in all of that What do you see as new opportunities? First was the transition from dvd to streaming. Then we have the transition. Two Netflix original content. Do you see that being the future
anything more working on is succeeding around the world like we have in the U S, so we want to be good a german content, as we are at american content, is go to brazilian content and korean and that's a long work in progress, so were investing a lot there, how do you make sure that you don't miss the next? opportunity and you feel confident that you will be in a position to just completely change gears. If need be, you weren't depends. I guess on what the substitute is. So if the substitute is other digital phenomena, video gaming or you know something The phone interaction or a are a vcr them were probably do fine, because that will also cross at a rate with right? Great television store movies and serious did the degree you got, the substitute is everybody's meditating, and then they
bother with entertainment, anymore. That's a radically different proposition, and typically, companies have a hard time without, like Kodak, might have enabled reduce digital cameras, but were they ever going to become Instagram, not really because the substitute for Kodak was so radically different in Instagram as a way of sharing memories and photos that they probably had no hope so It depends on what the innovation is with Netflix. I hope to promote flexibility, employee freedom and innovation instead of error prevention. Rule adherents. At the same time, I understood that has accompanied grows. If you dont managed with policies or control processes, the organization is likely to descend into chaos.
Through a gradual evolution over many years of trial and error. We found an approach for making this work. If you give your employees more freedom instead of developing processes, to prevent them from exercising their own judgment. They will make better decisions and it's easier to hold them accountable. This also makes for a happier more motivated. Workforce as well as more nimble. Company Netflix is a remarkable success story and it seems clear that the unique culture that Red Hastings has created, play a large role in that success, but I can't help, but wonder, is sat all there is. Just looking at your overall trajectory at Netflix as overall trajectory. What role do you ascribed to luck?
few jam in a number of times that incredibly lucky thing happened and you can't predicted lucky to be healthy, I'm lucky to be in California. So It just make what you can and do the best you can and in our case, but we did with this book. Is really try to lay out all the lessons that we learn so that future organs nations can start from a better place and sure they will in a way beyond what Netflix does and Dad you knowing twenty five thirty years, people that back and say yeah. That was good, but we ve gotten so much better. That was Maria Comic over in conversation with Red Hastings about his new book. No rules, rules, Netflix and the culture of reinvention. It was co author
by air, admire and published by Penguin Press as this book club format is still a work in progress, we would love to hear what you thought. Let us know at radio at for economics, dot com, hope you enjoyed this bonus episode. We will be back with a regular episode, as always on Wednesday, eleven pm eastern time until then take care of yourself, and if you can someone else too, if we can have a radio was produced by sticker and W productions. This episode was produced by Mary to Duke our staff also includes Allison, Craig Little red ribbon. Daphne Chen met Hickey Zack, Levinsky and Wallace are in turn, is immaterial get help this week from Dan deserve our theme, song is MR fortune by the hitchhikers, The other music was composed by Luis Gara, with additional music this week. By Michael Reorder and Stephen Alaric. You.
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Transcript generated on 2020-09-12.