Since Netflix started in the late 90s as a DVD-by-mail rental service competing with Blockbuster, it has completely reinvented itself… twice – first, when it went from DVD rental to video streaming platform, and then again when it went from licensing to producing original content.
But what does it take to create an organization capable of reinventing itself?
In this episode, originally recorded for the Commonwealth Club of California, Netflix CEO and co-founder Reed Hasting talks about his new book “No Rules Rules: Netflix and the Culture of Reinvention” with a16z co-founder and fellow author Ben Horowitz, who also wrote a bestselling book about culture last year. (Our pod The Stories & Code of Culture Change discusses Ben’s most recent book.)
During the conversation, Reed tells the story of Netflix’s evolution and his management philosophy, including the hard lesson he learned about what happens when you optimize for efficiency at the expense of creative talent. He also explains why sometimes a more narrow market focus is better for growth and shares the tactics that have helped Netflix expand globally and translate a culture of innovation across different countries, from Japan to Brazil to America.
TABLE OF CONTENTS
TABLE OF CONTENTS
Ben: One of the reasons I really liked your book is you start from that honest place of “I screwed it up and now I need to figure it out.” You did that at your prior company Pure Software, which needed to reinvent itself, but couldn’t. What were the things that you ran into at Pure that kept you from being able to reinvent?
Reed: I was a first-time manager. I had invented the first product Purify, which was a C debugging tool. I was an inexperienced CEO, and that manifested itself in several ways. One, in particular, was every time something went wrong, I didn’t want that to go wrong again, which is typically how an engineer approaches a problem. If you find an error in software, you try to build a regression suite or test for it that runs to make sure that error doesn’t come back, and that’s good design and good engineering.
I viewed the organization as a big software puzzle, which I know is laughably simplistic, but that’s how I viewed it. And so, every time there was an error, we’d put a process in place to make sure that error didn’t happen. And, indeed, generally that particular error didn’t happen. But what I missed were the cultural effects of that year after year. And the cultural effect was that the people who prospered were the people who could develop and follow process well. That was the value system. If you followed the process well, you were rewarded in all kinds of ways. Over time it slowly drove out the creative mavericks who didn’t really want to deal with all that crap. The subtle thing is in the short term the business ran better, not worse, because it was very highly optimized. There was no negative feedback about it.
Then the market shifted. In that case, it was C++ to Java, but the details don’t really matter. And we were unable to adapt. We ended up buying a bunch of companies to have new products for our sales force because we weren’t coming up with them ourselves. To do more acquisitions, it gets more complex because you’ve got this other company full of process, and eventually, we drowned.
And so, I think of process as: it all feels good, but it builds up like barnacles on a boat. If you don’t, every now and then, scrape off the barnacles, then eventually a storm comes, and it sinks the boat. We always think about it a little like technical debt, another software metaphor. You’ve got to go in and scrape the barnacles and really try to get rid of process. Because I failed in that way in the past, I at least want to fail in a novel way this time.
Ben: All new mistakes.
Reed: That’s it. We’re pushing super hard into employee freedom, pushing into anti-process, as hard as we can.I think of process as: it all feels good, but it builds up like barnacles on a boat. If you don't, every now and then, scrape off the barnacles, then eventually a storm comes, and it sinks the boat. -Reed Hastings Click To Tweet
Ben: And to an amazing level. Why write this book now? You also had a co-author, which I thought was interesting. It wasn’t the normal co-author ghostwriter. It was almost like, “Well, what’s Reed saying? Yeah, that part is true. I was wondering about this part,” that kind of thing. Why that approach?
Reed: Your books exempted, I have read way too many CEO pontification books, where the CEO says how great things are. I always wonder, “What’s the reality? What’s really happening in that company?” Now and then, I’ve got friends who work there, and I can get a beat on it, and it’s almost never what the CEO thinks.
Of course, I knew that would be true at Netflix, too. So, I thought let me get someone really independent, who is a business school professor and has their own reputation, and give them open access to Netflix. They can interview anyone and everyone and report the reality to the reader.
The book is me pontificating, going through the theory, which I like doing, and then Erin saying, this is her observation of the reality from dealing with all the employees.
She had formerly written an incredible book “Culture Map,” which is about national cultures within a corporation. If you’re a global company, and you have a lot of Koreans and Germans and Brazilians and Dutch and English and Japanese, who are misunderstanding each other, then to read her book “Culture Map” is incredible. So, I knew she had a good insight about culture.
Ben: Right. And did you end up learning things about Netflix. How did that process go with regards to actually running the company?
Reed: As you would expect, if you have a good anthropologist spend a lot of time with 100 people, you pick up things – not that they are completely new, but their relative weighting – like the fact that we felt and feel like such an American company. I had thought, “Oh, we’re really doing well. I’m becoming pretty global.” And our Korean or our Dutch employees are like, “Wow, this is a super American company.” Worse, a Californian company.
We still have a way to go to get to the Holy Grail where everyone feels they have an equal chance to thrive whether you’re an employee for us in Mexico City or in Mumbai.
What is culture?
Ben: We’ve been talking about culture, but culture means a lot of different things to a lot of different people. It’s a very overloaded word. When you speak of culture in the context of Netflix, what do you mean?
Reed: I think company culture is the behaviors that get you promoted or get you let go. Everyone, when they go into a company, has to figure out: What’s the real culture? What are the values and behaviors that are rewarded, and which ones are violations?
Sometimes there’s a written culture, and sometimes companies follow that written culture. Other times, there’s a written culture, like Enron famously had respect, integrity, but those weren’t actually what got people promoted. What got them promoted was trading profits, and then people cut corners to do that, and eventually, the company blew up. In any company, the real culture is shown by who gets rewarded and who gets pushed out.In any company, the real culture is shown by who gets rewarded and who gets pushed out. Click To Tweet
Ben: When you describe the Netflix culture, you do it in a very different way than we’re used to seeing in books. Usually a written culture starts with these values, integrity and so forth, but you more describe it as a system. There are these pillars in the system: candor, talent density, and rule removal – getting rid of rules. They’re interdependent, and then you also speak of layering them. You start with the talent density concept, and then you add a little candor, and then you remove a little rules, and then you cycle through the thing again. Increase your talent density, increase the amount of feedback people get, and then you can remove more rules. Could you describe why you have this interdependent view of culture that’s so different from the way it’s ordinarily described?
Reed: Let’s separate two things. There’s what our culture is, and then there’s, if you want to go in this direction, here are some ways to go about it. Now, for what a culture is, we try to describe precisely behaviors that are rewarded and that managers can be held accountable for. It’s an employee Bill of Rights in a way that’s in our culture memo.
I picked this up from Jack Welch’s book Winning, Chapter 3. He describes that in the past he put generalities – integrity, communication – but those were not near specific enough. He’s now much more long-form and specific about how to approach business problems and how to grow a great business, which is going to be unique for each company.
You can google Netflix culture and read our current memo, and the 10 behaviors there. That forms two ways. One is, it’s us saying to new employees what we want, which helps people select in or select out. It’s also a Bill of Rights that an employee is entitled to see those behaviors rewarded, and if they see that management is inconsistent – and we’re not perfect – compared to those values, it gives them something to refer to and to call us to account.
The question you brought up with this sort of spiral notion of do a little more. That was really Erin’s innovation as a book device to help people build confidence because it’s pretty hard to go from cultures with a lot of systems and process, to the next week, no process and no rules. That’s chaotic. We sat and talked through a way to go about it. It’s a mechanism, or our best guess, on the way an existing company can absorb this set of ideas if they want to.
Feedback makes you stronger
Ben: In getting to the Netflix culture, one of the things you talk about that you value is challenging your boss. We’re all flawed human beings, including bosses. That’s a behavior you want, but often a boss will not reward that necessarily. How does that end up working inside of Netflix, so that you don’t end up with a hypocritical culture where somebody challenges the boss and is punished?
Reed: Certainly, if they’re punished, that’s going to end all feedback. But even more strongly, because it’s abnormal to criticize the boss, in a way dangerous, the boss has to go out of their way to farm for dissent.
I do an exercise with our executives: “If you were CEO, what would be different at Netflix?” They have to list the top three things that would be different and that could be: we’d be in China, where we’re not, or it could be, we’re in sports, or it could be we would pay higher or lower, or it could be as trivial as we’d have better food. That forces them to say, “If I were CEO what would be different?” That’s one exercise in farming for dissent.
Then there’s when you’re lucky to get feedback. I’ll laud the person often publicly with their permission: “person X told me this, that was a hard piece of feedback, but it is fair.” It’s giving them psychic rewards where other people think, “Oh, that person was gutsy and did that.” At multiple levels, you want to overcome people’s reticence to provide useful feedback to power figures.I'll do an exercise with our executives: 'If you were CEO, what would be different at Netflix?' -Reed Hastings Click To Tweet
Ben: That’s such a great question, by the way, how would you run Netflix, if you were in my seat? It’s just such a great question to get people to speak up on things that would otherwise seem very dangerous.
With managers, how do you get them to do that, because you’re asking a question, where in some way, emotionally at least, you don’t want to know the answer. How does that training work? Is that a difficult thing to get them to do?
Reed: It’s generally easy to get them to critique pricing strategy or something that’s economic. And it’s harder to get them to say, “Well, if I were CEO, we would have a more empathetic CEO.” In other words, personal characteristics. There are things that are product, economic – you can have more films or less TV – that are not personal critiques.
When you get a personal critique… for me at least, even though I have accomplished all these things, when someone that I respect, one of our executives, in particular, gives me feedback that’s not positive, it hurts. I’m like, “Oh my God. No, no, no. You don’t understand.” I’m defensive. And then I just stop myself and remember getting feedback, and the pain, is like doing crunches or push-ups. You want to stop, you know it hurts, and you know that it’s the painful ones that make you stronger. Ray Dalio talks a bunch about this. If you contain your ego, and if you can take the pain, you’ll get stronger, and you’ll get better as a leader.
Then instead of arguing with the person, I’ll say, “Tell me more? What else?” And just keep hitting those two, “Tell me more? What else?” And it’ll be amazing what comes out. It really hurts, but that’s what makes you better.
To play on the exercise metaphor, if you’re a trainer for someone and you beat them, that’s not helpful. We always want the feedback to be constructive. Yes, we want honesty and candor, but not your drunken self-spouting off random things. What we mean is professional, helpful. It can be direct. It can still hurt, but it’s within the bounds of the professional self. It’s not critiquing or sharing other things that you might or might not think – I’ll call that your drunk self. It’s keeping that stuff to the side. It’s not unleashing that, but it’s making your professional self much more open.
Another thing we say is don’t say something about a colleague that you haven’t or won’t say to them. If you are working at Netflix at any level and you come to me and say, “You know, Ted Sarandos, my co-CEO, he’s got this, this, and that problem.” Then I say, “Well, that’s interesting. What did he say when you told him that?” And then, they will look at me all frozen. “Well, I can’t tell them that.” And I’m like, “Yes, you can.” And that’s the first line.
When people are talking about other colleagues, which is normal and fine, just keep pressing them with, “Oh, and what did they say when you asked them about that?” That stimulates directness.Getting feedback, and the pain, is like doing crunches or push-ups. You want to stop, you know it hurts, and you know that it's the painful ones that make you stronger. -Reed Hastings Click To Tweet
Translating company culture globally
Ben: You had a great anecdote in the book about Japan, which has a very pronounced country culture that isn’t that compatible with plain directness in the way that you talk about. Tell us a little bit about how you got past that.
Reed: Japan, as an island culture and a very cohesive homogeneous culture, has developed a high art form of giving feedback very indirectly. They call it “reading the air.” If we’re both Japanese, without saying anything inappropriate verbally, I can give you a bunch of feedback and be very confident you got the message.
When interacting with Americans, we don’t know that art form, and so they’ll say something and we’re supposed to interpret it as “no way” or “yes” or “I wish you did this differently or that.” And we completely miss it because we don’t know how to read the air, and they don’t know that we can’t. It’s definitely a big challenge.
Two, the Confucian cultures have a high deference to elders, so critiquing anyone in power is doubly hard. Then, related to reading the air, if they do critiques in public, that’s triply hard. I say to our Americans, “For a Japanese to receive criticism in public would be like you yelling at them in American culture, where it’s really emotionally charged, and they interpret it that way.”
What we have to do is help both sides understand each other, and that’s where Erin’s Culture Map book is so good. We say, “Look, we standardized on English because it takes too long for the rest of the world to learn Japanese and standardize on that, and we do need one language to communicate. In this dimension of giving feedback, we’re going to go with the American style of verbal feedback because we can all learn that around the world.”
Then what we’ve tried to do is give permission to our Japanese colleagues to do that, including doing dinners where we all have to give feedback to each other. What you’re trying to do there is role model the behavior, so that they feel like it’s acceptable.
To give you another example where we changed the culture – Americans form trust by doing tasks. If you go into a meeting and you barely know another employee, but then you work on a project together, and it’s done well, then you have high trust because you trust their competence. We build trust that way, and we see chit chat about kids and baseball teams in a meeting as inefficient. Americans are very efficient.
Brazilians are very much relationship builders. They want to take meals and really talk about family and society and religion and sports. Then, we’ll do the work, and we’ll trust each other at work because we’ve got this basis. They’re different styles. What we realized is actually the Brazilian style is more efficient, because if you’ve got a strong relationship with people, then you can give good feedback. You have that kind of emotional caring for each other.
About five years ago, when we started doing a lot of work in Brazil, we realized that we should really shift our culture to be more relationship-oriented. And so, we’ll open meetings and talk about parents and kids and animals, sports and news, and we’ll spend 5% or 10% of the time on that, and then we’ll get to the real topics. We want a consistent style around the world of expectations, so that managers can be on the same page.
Ben: And I know it’s coming from a good place because I already had the conversation with you about my kids, and you remembered my kids. That ends up being, at a high performing American company, like Netflix, a key cultural element that you run out and grab.
Reed: That’s right. The strength of the relationship allows the effectiveness of the feedback. The narrow inefficiency of taking that time turns out actually to be well worthwhile.
Optimizing for innovation (not efficiency)
Reed: Now, we’re diving into feedback, but we should back up a little bit. For both you and I, we care about how you create long-term companies that continue to innovate. We’ve both been shocked at the fall of HP or Sun (Microsystems). We try to figure out what happens to companies when there’s rapid change.
Most companies over-optimize for efficiency. They want to get so good at their current market that they lose flexibility to adjust to the future. And the non-intuitive thing is it’s better to manage chaotically, if that’s productive and fertile.Most companies over-optimize for efficiency. They want to get so good at their current market that they lose flexibility to adjust to the future. -Reed Hastings Click To Tweet
Think of the standard model. It’s clean, efficient, sanitary, sterile, and our model is messy and chaotic and fertile. And in the long term fertile will beat sterile, but in the short term, sterile is very good.
You have to be very conscious as a leader how you’re optimizing for long-term innovation. Manufacturing has dominated the economy for 200 years. There’s this big influence from manufacturing, because it’s generated most of the economic wealth of the past couple hundred years, around the boss and the worker and the worker following the rules. You want zero variation. That’s nirvana.
And yet, if you’re an innovation culture, variation is essential. At core, an innovation culture is around increasing variation, and a manufacturing culture, like 5-sigma, is around decreasing variation. In manufacturing and in safety – think of hospitals and airlines – you want perfect process, full compliance, and that is the right way to manage those businesses, which are most of the economy. Then there’s this creative sector, which we’re both in, and as managers we’ve inherited a cultural legacy that is highly optimized for manufacturing and safety with process, OKRs, and all these ideas to manage creativity, but, in fact, we really need to create a fertile ecosystem and not try to manage it too much, and yet not have it be chaotic.
There just hasn’t been enough thinking about what’s unique about creative companies. For creative companies, the fundamental risk is lack of innovation – not execution and efficiency, bringing costs down, those kinds of manufacturing things. It’s really are you organized for innovation? We’re trying to make a contribution around what would you do to optimize creativity. We think that’s around employee freedom, which is supported by the no rules context.
Other people have other ideas, but they are still about how do you have a company that is able to do new inventions. Let’s take Amazon, an incredible company that has done amazing amounts of innovation, arguably more than Netflix. They’re not nearly as much as we are about freedom and no rules, but they’re about two pizza lunches, and they’re so willing to fail. They can do that whole mobile phone disaster, and then once in a while, they have an Alexa, and it changes the world.
Over time the innovation sector will see that there’s a couple of different approaches and find the best way to combine them.
Ben: Yours is very interesting because it is, at its core, a cultural approach. Whereas when I think about Jeff Bezos, he goes into what you said – willingness to take very high risks. It gets back, though, to a cultural thing. Is it rewarded in the culture to take that high risk or is it punished when you fail? And he’s very thoughtful about how you reward it.
Reed: And Google is a fascinating one because, of course, 10 years ago they were all about 20% time, and now that’s all gone. What did they learn? It’s pretty hard to do innovation one day a week. The big innovations that they did are things like Android and Google Drive and Google Docs – massive projects. I’m guessing that they probably learned that, “Hey, at Google the way we innovate is we can put hundreds of people on big ideas, and it’s no longer, part-time innovation that matters.”
Ben: Google’s approach to innovation always seemed to me to be this super courageous, but top-down set of ideas. We want to build an autonomous car, and we’re going to put unlimited money for unlimited years into that, and that’s an amazing thing to do. But your idea is almost the opposite, which is, “Look, we’ve got all these creative people here, and if we get rid of the rules that constrain their thinking, they will come up with the innovation, and there won’t be any rule against them continuing with that innovation and building it. There’s nobody who’s going to say “No” because we don’t have any rules.”
Reed: In that way, Netflix and Amazon are closer to those bottom-up innovations, but Amazon has more lines of business. We’re still basically a one-service company, so we’re earlier in the phase. In Google terms, it’d be as if we only had search.
Reinventing Netflix, from DVD to Streaming
Ben: You did run into at Netflix a very important turning point where, if you had continued to optimize the DVD business instead of getting to the streaming business, you would’ve had a huge problem. Can you tell us a little bit about that because you also kind of screwed it up? I remember you saying, somewhat thanks to my business partner Marc Andreessen who was very much about eject DVDs and go into the future. Could you tell us about that transition?
Reed: Typically, venture capitalists say that you want to go after the largest market possible. I’ve always thought that’s crazy because you can’t defend it.
Ben: Right, it’s too big.
Reed: I have always thought you want to go after the smallest market possible that can hold your 5- to 10-year growth ambitions.
Ben: Right, the narrowest target.I have always thought you want to go after the smallest market possible that can hold your 5 to 10-year growth ambitions. Click To Tweet
Reed: If it’s the left-handed scissors market, it’s too narrow. The practical thing on how big it is, is can it hold 5 or 10 years of growth? So, back to DVD, by the time we got to 2005, we realized that DVD was probably going to peak about 2010. It could no longer hold our 5 or 10-year growth ambitions. Then we had to figure out how to expand the market definition. We said, “Okay, now is the time. We’ve got to expand into streaming.”
In 2007, YouTube had just started. Google had just bought it at the beginning of 2007. Hulu started. Amazon did a thing called Unbox, which was their Internet delivery on video, and Netflix started streaming. All four of us entered basically in ’07, and since then it’s been a rocket ship.
Ben: For multiple companies.
Reed: Yes, that’s right. It was a big enough market. There was a play there. And Hulu was doing really well. It was owned by three of the major media companies, and to some degree, they were positioning it as: if you care about DVD and streaming, Netflix is okay, but if you really care about streaming, Hulu is the solution.
Our marketing played into this because the easiest way to differentiate against Hulu was, “Well, we have DVDs, too.” The problem was that was going to be a fading value to consumers. We had to say to our marketers, “You can’t talk about it. We’ve got to strip it away because you’re going to make us dependent on a thing that’s going to become irrelevant, and we have to be, full stop, the best streaming service and to win on that basis.”
In fact, we had to have DVD and streaming be separate, so that streaming had to fight and win and be better than Hulu as a streaming service. So, partially goaded by the wonderfully radical Marc Andreessen who was like, “burn the boats,” we came up with this plan to separate DVD and streaming.
We made one tragic mistake in it. The pricing for the combined plan had been $10, and the separate plans we set were $8 for streaming, which was about Hulu’s price, and $8 for DVD. It was effectively a 60% price increase. We sent an email to 20 million American families, so 20% of American society, on one day, saying the price is going up by 60%, and you get to use two services, two websites instead of one. Less convenience, radically higher price in the middle of a recession.
Ben: And no new features.
Reed: And no new features. It did not go well. I explained it as essential for Netflix’s long-term, which it was.
Ben: Yeah, they [customers] don’t care about you.
Reed: Oh, my God, it was crazy bad. The stock went down 75%. Lots of members quit. Saturday Night Live did skits making fun of us. It was nightmarish.
We realized that this was going to be a challenge to get out of, and we slowly had to earn back the trust of customers. We basically switched it from Qwikster to DVD.com. Now, if you go to DVD.com, that’s our DVD service. We have a little under 2 million members that are still DVD subscribers. We have nearly 200 million who are streaming. We were right to separate them. It’s just we did it an awful way.
We did the thing that Kodak never did, that AOL never did, that Blockbuster never did. We transitioned our business successfully, but we did not stick the landing. We landed ugly.We did the thing that Kodak never did, that AOL never did, that Blockbuster never did. We transitioned our business successfully, but we did not stick the landing. We landed ugly. Click To Tweet
Ben: One of the things that you talk about in the book is that the knowledge to stick it correctly was in the company, but you just didn’t listen to it.
Reed: Afterward, we first had to heal. That took six months or a year because it was just a crisis of: What are we going to cut? How are we going to survive? Our General Counsel joked that he had worked at Webvan, so at least he had bankruptcy skills. It was gallows humor.
After we healed, we said, “Okay, what went wrong?” The first level answer was an arrogant CEO who didn’t listen to his people, a King Lear kind of thing. For the most part, that’s not what happened. What happened was something more subtle. Our leading people were too deferential. They were like, “Reed’s been right so many times. I think this is going to be bad, but he must see something.”
They didn’t know that each of them felt the same way. In hindsight, if we had said, “All execs, write down your level of confidence in this move, disaster to genius,” it would’ve come up that 20 people think it’s going to be bad. With the strength of their shared feeling, they would’ve realized, “No, we’re right. Reed is wrong.” Then, probably, we would’ve stopped.
We said, in the future, all major decisions, we will have everybody write down what they think +10 to -10 and why. We do that in a Google Sheet, but any shared medium is fine. Then everyone knows what everyone else thinks in writing. That little device has helped us avoid chaos and catastrophe.
Ben: That’s such a great device. It’s very deceiving when you’re a CEO because it’s at the point when you are right consistently and feeling confident that you cause that problem. It’s right at the point when you’re doing the best that people put too much faith in you.All major decisions, we have everybody write down what they think +10 to -10 and why. That little device has helped us avoid chaos and catastrophe. - Reed Hastings Click To Tweet
The Netflix v. Blockbuster dogfight
Ben: If a business was in like a dogfight competitive battle in its current market, would you still drive for innovation or would you need to optimize more for efficiency?
Reed: Probably a little more optimized. When we were in the DVD fight with Blockbuster in ’05 to ’07, we got distracted doing magic charms.
We did four things to make ourselves feel better. We went into selling used DVDs directly on our website rather than on eBay. We started buying some little films at Sundance, like a Maggie Gyllenhaal film, for original content. We launched a private social network called Netflix Friends, and this was 2005, Facebook was barely out of Harvard. You could see each other’s queue and viewing history, if you gave each other permissions. And we sold banner advertising on our website, like Overstock used to do. It was four nontrivial engineering efforts that to differentiate us against Blockbuster.
Fortunately, we also spent some time getting shipping more reliable, so our queue fulfillment rate went from 96% to 98%. In the end, once we beat Blockbuster, we realized the only thing that mattered was that queue fulfillment rate, the 96% to 98%.
We, as leaders, did not have the courage to stand before the employees and say, “We’re going to win because we can move this from 96% to 98%.” We needed these little magic charms to make ourselves feel good. It was totally bad management to get distracted by those magic charms.
Having the confidence to focus on the basics and doing the basics incredibly well is important. That lesson is more of a business strategy lesson than a culture lesson, so it’s not in the book, but that lesson is what’s fueled our focus on movies and series and not sports and video games and user-generated content and all kinds of other things.
It’s always a balance when you’re in that dogfight. You better win the dogfight first, and then you can invent the new airplane.
Ben: Without tactics sometimes there’s no strategy.It's always a balance when you're in that dogfight. You better win the dogfight first, and then you can invent the new airplane. Click To Tweet
Getting better as you get bigger
Ben: When you think of Netflix’s culture, what parts do you consider to be timeless evergreen relative to the parts you see as open to evolution as you enter new markets and evolve the business?
Reed: It’s all open to evolution. None of it is golden tablets. We’re constantly trying to improve the culture.
Most people have the default idea that as you get bigger, you start sucking. It gets political, it gets bureaucratic. But if you want to effect the world at scale, you want to grow. You’re making a choice not to be a boutique restaurant in your neighborhood where you’re fantastic, but you don’t change the world. Most of us take the trade-off to get bigger, which is harder, because then we can have more impact in the world.
The key thing is to get people to believe that it’s possible to get better as you get bigger. Then you have to really show the examples of where you’re getting better as you get bigger.
Now, it is harder as you get bigger, but think of Malthus, who 250 years ago thought the whole world was going to starve once we got to above a billion people. Totally wrong. What he didn’t understand is that they’re going to be a lot of people thinking about how to have increased food productivity, and in fact, you’d have less starvation than 250 years ago instead of more. He missed that.
Now, as Netflix grows, we have more people thinking about how to improve the culture. Yes, it’s harder, but we’ve got more brainpower working on it, and people are coming up with ideas.
A big example would be about four years ago, we added inclusion as a core value, and we’ve been working hard on it, and we’ve made real progress. I wish that I had led that 10 years ago, but I didn’t. I wish I had led it at all, but it was brought to me as something that really needed to be done. I’m on board, and we’re driving it, but it’s a real improvement because we’ve got more people thinking about it. Now, of our top 20 leaders, we’re half men, half women. We’re 25% leaders of color in our top 20. That’s been a great improvement that was really driven by all the new talent at Netflix.
Ben: Really interesting. It is challenging, in particular, getting everybody to participate in a culture at scale. It’s probably the greatest management challenge there is.
Final question, and you had such colorful answers to this in The Wall Street Journal. How has COVID-19 impacted Netflix? Do you feel the company is in a better place to react to crises because of its cultural reinvention?
Reed: I love work from home. I’ve been doing work from home my whole life nights and weekends. I think it’s always a great part of the mix. I do think that exclusive work from home, where you don’t have any in-person contact, is not good, but work from home as part of the work experience is fantastic.
And then, is Netflix differentially able to adapt? Maybe, but I don’t know, and it kind of doesn’t matter, because COVID, fortunately, is a one in 100 years phenomenon. We’re not trying to draw great cultural lessons from it. Instead, we’re trying to think of the things that we’ll need to be good at for 5, 10, 20 years. We’re all making do. I do hope that we’ll have a vaccine soon, that many people will get it, and that we’ll eliminate COVID from society and be back to normal next year. That will be a great day when we can do this interview live in the Commonwealth Club and have some fun.
Ben: Yeah. That’ll be a great day. Thank you so much, Reed.