“If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” Antoine de Saint-Exupery

Over the weekend I was doing some research on retrospectives and found a very enlightening powerpoint presentation from the founder of Netflix about the Netflix company values. It’s 127 or so slides, which seems a little long by about 100 slides; still the content was more valuable than a lot of books I’ve read on business. Below are my notes.

I’ve had an on-again, off-again relationship with Netflix over the years; sometimes their streaming services seem to be cutting-edge, other times its hopelessly stale. A year ago or so I cut off my subscription and switched to Amazon’s Prime service, and found it no better (and in fact worse in some ways) – after a few months we switched back.

I’ve been impressed that for a large company they’ve been able to make some epic missteps very publicly and still self-correct. It’s hard to be a large company and still be nimble enough to try new things. This, it turns out, was no accident but part of a deliberate company strategy.

Real Values Versus Nice-Sounding Values

Let’s take company values as an example. How do these sound?

• Integrity
• Communication
• Respect
• Excellence

The values above are actually from Enron. How did that work out? Ten years ago I remember completing ethics tests of 30-60 minutes every few months for Countrywide Loans; again, the ethics and values that were preached loudly in public were not the ones lived by day to day or what both of the companies above actually thought.

Both companies were lying to themselves. We lie to ourselves all the time, trying to present a reality we would like to see (instead of what is); why shouldn’t organizations do the same? As Reed Hastings points out, the real company values, as opposed to the nice-sounding ones, are shown by those that get rewarded, promoted, and let go. To be effective, these values must be referenced in hiring, at 360 reviews, in exits, and in promotions.

The company values Netflix chose are:

• Judgment
  • Make wise decisions despite ambiguity
  • Identify root causes beyond symptoms
  • You can think strategically and articulate what your mission
  • GEFN (Good Enough For Now)
• Communication
  • You listen well, instead of reacting fast
  • Concise and articulate
  • You treat others with respect regardless of status or if they disagree with you
  • Maintain calm poise under stress
• Impact
  • Consistent strong performance
  • Focus on results rather than process
  • Exhibit bias-to-action versus analysis-paralysis
• Curiosity
  • Learn rapidly
  • Can contribute outside your specialty
• Innovation
  • Challenge assumptions
  • Minimize complexities, create new ideas
• Courage
  • Say what you think, even if controversial
  • Take smart risks
  • Question actions inconsistent with our values
• Passion
  • Tenacious
  • Inspire others
  • Care about the projects success
• Honesty
  • You only say things about fellow employees you would say to their faces
  • Known for candor and directness
  • Non-political when you disagree with others
  • Quick to admit mistakes
• Selflessness
  • Seek what is best for the company, not yourself
  • Ego-less when searching for the best ideas
  • You make time to help colleagues
  • You share information openly and proactively

Keeping Your Best

In retaining people, use “The Keeper System” – ask, which of my people, if they told me they were leaving, would I fight to keep? Employees should check in and ask, “If I told you I was leaving, how hard would you fight to get me to stay?” Sustained B-level performance gets a generous severance package with respect. And ask yourself if you want to keep brilliant jerks.

Some companies tolerate them; Netflix finds the cost to effective teamwork too high. Diverse styles are fine – as long as it embodies the 9 values above. This is the most important decision you can make; creative and inventive fields like programming, the best are 10x better than the average.

The qualities of this ‘best’ person are:

• Self-motivating
• Self-aware
• Always improving
• Acts like a leader
• Doesn’t want to be told what to do
• Picks up the trash lying on the floor

Netflix believes in paying top-of-market compensation. This attracts high-value people through $ and the freedom to make impact. Repeatedly he stresses the need to be demanding about a high-performance corporate culture. Ask in reviews, “How much would it cost to replace this person? How much would we pay to keep him/her?”

Netflix pays no bonuses or stock options, or philanthropic matches. It puts all the $ it can into great salaries. Everyone, from the CEO to the receptionist, gets the same $10,000/year to go towards health benefits. Netflix also doesn’t do ranking against other employees (which encourages destructive team politics).

On resource development, Netflix doesn’t believe in ‘mentoring’ or other ‘professional development’ tricks. And no one’s career should be tied to a particular company. The company develops people by giving them the opportunity to develop themselves – surrounding them with stunning colleagues and big challenges. What stifles growth are mediocre teammates or un-challenging work. The good people grow the way we always have – through observation, experience, introspection, reading, discussions.

One of the best quotes – “Your economic security is based on your skill and reputation.”

The Aging of the Enterprise

Process-focus in a company drives talent out. Companies tend to become bureaucratic as they grow –complexity grows, talent density drops chaos and errors spike – the business becomes too complex to run informally with a dropping talent level.

Enter, the process manager – who seductively offers a tempting outcome: minimal thinking, few mistakes (meaning efficient), inflexible. Over time, few curious intentor/maverick types will remain in a company driven by process – and worse for the company, it becomes vulnerable to market shifts and unable to adapt.

There are three (false) choices that companies face as they grow:

1. Stay creative by staying small. The price is, low impact.
2. Avoid rules as you grow (price – chaos)
3. Use process as you grow (cripple creativity, flexibility, ability to thrive despite market changes)

And there’s a fourth option:

1. Hire more high performance people, not rules. (This means you can run informally with self discipline, avoid chaos – and attract more creative people)

Netflix Culture Freedom and Responsibility

Instead of a culture of process adherence, create a culture of creativity and self-discipline, freedom and responsibility. Be wary of efficiency optimizations that increase complexity and rigidity. As the company grows, minimize rules but inhibit chaos with more high performance people.

In the long term flexibility is more important than efficiency. This implies the need to groom rules the way we do a backlog and remove them as part of an ongoing process – rules (like laws in government!) tend to creep in if not checked and trimmed.

Without rules, how do leaders create value? The answer lies in…

Context

Good process helps talented people get more done; bad process tries to prevent recoverable mistakes (multi-level approval for projects, etc). For example, Netflix has a six-word policy on vacations (“There is no policy or tracking.”) and expenses (“Act in Netflix’s best interests.”)

Context is everything – as the quote at the top of the blog brings out. A good manager figures out how to get great outcomes by setting the appropriate context, rather than by trying to control other people.

Focus on Context, Not Control

Highly Aligned, Loosely Coupled

• Highly Aligned
  • Strategy and goals are clear, specific, and broadly understood
  • Team interactions focused on strategy and goals, rather than tactics
  • Requires large investment in management time to be transparent, articulate and perceptive
• Loosely Coupled
  • Minimal cross-functional meetings except to get aligned on goals and strategy
  • Trust between groups on tactics without previewing/approving (fast moving)
  • Leaders reaching out proactively for ad-hoc coordination and perspective as needed
  • Occasional post-mortems on tactics necessary to increase alignment