Musings #23: No Rules - Lead With Context

I hope you all had a good Diwali break. I did manage to take a couple of days off and enjoyed the time with family. I also managed to catch up on a couple of movies from my watch list. One of them was the Oscar-winning documentary "Icarus" - a film that I was intrigued by for multiple reasons. Firstly, it was produced by one of the founding partners at Accel, Jim Schwartz, who is probably one of the few VCs who has won an Oscar. Secondly, I was curious to learn about the dark side of sports - performance enhancement using drugs. And finally, I recently read "No Rules Rules," which covers the unique culture cultivated in Netflix by its founder Reed Hastings. In that book, Icarus is featured as a bold bet that one of the content managers made - a $4.6M rights purchase, which was the highest ever for a documentary at that time. I really enjoyed the movie!

Last week, we took a close look at Netflix's strategies to stay on top of the game. Today, we will dive deeper into Netflix's unique culture that is core for them to be the powerhouse that they are. Many readers are probably already familiar with the "Netflix Culture Deck" first published in 2009, which many, including HBR, have referred to as re-invention of HR. In the new book, No Rules Rules, Reed Hastings and Erin Meyer go deep into the philosophies and how Netflix cultivated this culture. The following image succinctly captures the journey Netflix made to achieve a culture of "Freedom and Responsibility."

Reed compares Netflix to a jazz music band, where each of the musicians needs to be at top form and free to play their individual styles but coming together for the overall theme of the music as compared to a purely classical orchestra that follows notes and has to stick to it closely to make good music. Let us take a closer look at the three main aspects of this culture, creating such beautiful music.

1) Building up Talent Density

WE ARE A TEAM, NOT A FAMILY

Reed looks at his employees as a coach would look at a professional sports team (a concept we already discussed here). Keeping the best people for the best jobs (and paying top dollars to retain them). It is very different from how many companies encourage a familial environment. He feels that talent is contagious and that if we want a high performing team, we cannot have average performers mixed in.

We learned that a company with really dense talent is a company everyone wants to work for. High performers especially thrive in environments where the overall talent density is high.

Hence they came up with the controversial but highly effective "Keeper Test."

IF A PERSON ON YOUR TEAM WERE TO QUIT TOMORROW, WOULD YOU TRY TO CHANGE THEIR MIND? OR WOULD YOU ACCEPT THEIR RESIGNATION, PERHAPS WITH A LITTLE RELIEF? IF THE LATTER, YOU SHOULD GIVE THEM A SEVERANCE PACKAGE NOW, AND LOOK FOR A STAR, SOMEONE YOU WOULD FIGHT TO KEEP.

2) Maxing-up Candor

Reed re-iterates the importance of Radical Candor and how a great culture cannot be built without candor:

"Only say about someone what you will say to their face." I modeled this behavior as best I could, and whenever someone came to me to complain about another employee, I would ask, "What did that person say when you spoke to him about this directly?"

Netflix has a bunch of tools and techniques embedded in its culture for enhancing openness in the organization. My favorite was the 4A framework for Giving & Receiving feedback, which we could all practice:

Giving Feedback

1. AIM TO ASSIST: This is very important for the feedback to land effectively.

Feedback must be given with positive intent. Giving feedback in order to get frustration off your chest, intentionally hurting the other person, or furthering your political agenda is not tolerated. Clearly explain how a specific behavior change will help the individual or the company, not how it will help you.

e.g., "Anand, I appreciate you giving me direct and actionable feedback, but it would be good if you prepare me better to receive the feedback. Maybe a heads-up that you plan to give me feedback would be super helpful for me to come prepared for it".

2. ACTIONABLE: If we give generic feedback that is not actionable, it cannot help the recipient. Best to provide actionable feedback that the receiver can use to improve their performance. In the above example, the person giving me feedback suggests one way to "action" on the input.

Receiving Feedback

3. APPRECIATE: This is the toughest part of receiving feedback. I'm still working on this. It is easy to start becoming defensive or give excuses. We need to fight this urge.

Natural human inclination is to provide a defense or excuse when receiving criticism; we all reflexively seek to protect our egos and reputation. When you receive feedback, you need to fight this natural reaction and instead ask yourself, “How can I show appreciation for this feedback by listening carefully, considering the message with an open mind, and becoming neither defensive nor angry?”

4. ACCEPT OR DISCARD: This is an important aspect of receiving feedback. Not all feedback needs to be worked on. While it is important to receive and thank the person who provides the feedback, we know our context the best, and so it is essential to act on feedback that we find relevant and discard the ones that do not apply. Losing sleep over every feedback we get is not going to help us get better. It is important to separate the wheat from the chaff when it comes to feedback.

3) Eliminating Controls

With high-talent density and a candid environment with thoughtful feedback for improvement, Netflix has been able to eliminate most controls - this frees up Netflix employees to focus on doing their job to the best of their abilities and not worry about rules and policies:

We’ve looked at over a dozen policies and processes that most companies have but that we don’t have at Netflix. These include: Vacation Policies, Decision-Making Approvals, Expense Policies, Performance Improvement Plans, Approval Processes, Raise Pools, Key Performance Indicators, Management by Objective, Travel Policies, Decision Making by Committee, Contract Sign-Offs, Salary Bands, Pay Grades, Pay-Per-Performance Bonuses

The book clearly outlines how Netflix is a culture where leaders "Lead with context, not control" and how they are "Highly aligned but loosely coupled." What this means is that the leaders set the context/vision very clearly, and that is percolated well through the various layers of the "Netflix tree" where the CEO acts as the root (setting the vision and context). And each small branch is empowered to make decisions and get the job done. For those of you who want to try this, the book walks through the various steps of eliminating controls — starting from easier ones like Vacation and Travel policies and how to go about it.

Application

There are many actionable insights for startup leaders from this book, including eliminating various policies and the multiple ways of cultivating a candid environment. One specific framework for encouraging innovation, particularly caught my attention to try out - The Netflix Innovation Cycle:

• “Farm for dissent,” or “socialize” the idea - talks about a specific framework to actively solicit feedback and dissenting voices on new ideas.
• For a big idea, test it out - it is important to test out ideas even if the leaders don't believe in the idea - the team should feel comfortable testing out ideas.
• As the informed captain, make your bet - the key to the innovation cycle is for the individual closest to the situation to make the call after considering all the inputs from the above steps. The person need not get consensus to move forward.
• If it succeeds, celebrate. If it fails, sunshine it - not all ideas work out. If it works, make it a point to celebrate - particularly if someone went ahead with an idea despite a leader's apprehension and was right about it. And if it fails, boldly "sunshine it" on why the idea failed and learnings. For promoting a culture of innovation, leaders' sunshining failed ideas is a key step, and without this, we won't have an innovative environment.

Spotlight

Here is a good interview with Reed Hastings on the David Rubenstein show. Reed talks about several things, including what it takes to be a great leader - "Be Super proud of the organization and personally humble."

That is all for this week. I would love to hear from you on your critical takeaways on this topic of "No Rules." If you have read the book, what were some of your learnings? I know some of you are trying a culture of Freedom and Responsibility in your startup - we would like to hear from you on any insights from your journey that others can learn from.

(If you are enjoying Musings and find it helpful, please subscribe, and please share with friends who might find it useful.)