🏈 THE SIDELINE

In 1997, Reed Hastings was fined $40 at Blockbuster for returning Apollo 13 late. He was embarrassed enough to wonder if there was a better way. That annoyance turned into an idea..

A DVD rental service by mail, no late fees, no brick and mortar overhead.

He’d already built and sold Pure Software, a company he described as a trial by fire. Every year there were twice as many people and he felt underprepared for the personalities and complexities that came with scaling.

He didn’t want to make the same mistake twice.

So when Netflix started growing, Hastings made a deliberate decision. Instead of adding rules and process to manage the chaos of growth, he would add better people and give them more freedom.

In 2009, Hastings and his head of HR Patty McCord published their internal culture deck publicly (link). Facebook COO Sheryl Sandberg called it one of the most important documents ever to come out of Silicon Valley. It had 125 slides. Most of them had fewer than ten words.

It was a blueprint for running a company that most owners would find uncomfortable to follow.

Here’s what it said…

🌎 Expand Your Thinking

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A Yale study of 59 exited search fund companies found that ~80% of value creation came from selling businesses at higher EBITDA multiples…not from operational improvement. (link)

Are GTM engineers here to stay or go?

Manny Medina on WHY to kill the competition (link)

10 BRUTAL LESSONS

Most business owners read this list and agree with all of it.

So don’t just read these…act on what you already know.

1. A great workplace is stunning colleagues Most owners think culture is about perks, flexible hours, or a good vibe. Hastings disagreed. The real company values are shown by who gets rewarded, promoted, or let go. Build around exceptional people and the culture takes care of itself.

↳ Audit your team. Who raises the bar and who lowers it?

2. Adequate performance gets a generous severance Netflix favored smaller teams of highly talented individuals and terminated average performing staff with the refrain: adequate performance gets you a generous severance. Not cruel. Just honest about what the business actually needs.

↳ Tolerance of mediocrity is a leadership choice, not a constraint.

3. The Keeper Test Hastings asked managers to constantly ask: if this person told me they were leaving for a similar job at a peer company, would I fight hard to keep them? If the answer is no, it is time to let that person go and open the role for someone better.

↳ Run this test today on every person in a key seat.

4. No vacation policy Employees had unlimited vacation. Hastings said the freedom signals to employees that we trust them to do the right thing, which in turn encourages them to behave responsibly. Most owners track vacation because they don;’t trust their team...or let’s be real, they’re frontline ops and need extreme management. Distrust is a culture problem worth solving.

↳ Trust is built through hiring, not policy.

5. Five words replaced the expense policy The entire travel and expense policy at Netflix was: act in Netflix's best interest. No approval chains or forms, just judgment.

↳ If your team can’t be trusted with a credit card, you have a hiring problem.

6. Pay top of market before they ask Netflix believed it had to pay employees more than anyone else to attract and retain top talent. That sometimes meant giving people higher salaries than what they might settle for, often before they even asked.

↳ The cost of a great hire is almost always lower than the cost of a wrong one.

7. Open the books To a crowd of 400 managers, several days ahead of Netflix's earnings call, Hastings dove deep into the company's financials and strategy. One new VP said secretiveness was so omnipresent at his previous employer that the transparency at Netflix was a genuine shock.

↳ Informed people make better decisions. Uninformed people make expensive ones.

8. Context not control Netflix tried to manage through context rather than control. Clear roles, expectations, then trust that the best will get the work done better than you might.

↳ If you’re making every decision, you aren’t leading but bottlenecking.

9. The culture deck was designed to repel Netflix published their internal culture deck publicly in 2009 not to attract talent, but to keep away the wrong people. People who fundamentally wanted job security over growth were repelled. People who wanted growth and were willing to trade off job security loved it.

↳ Your culture should say yes to some people and no to others.

10. Process kills creativity when the market shifts A highly successful process-driven company ends up with minimal thinking required, few mistakes, very efficient operations, and very few curious innovator-mavericks remaining. Then the market shifts and the company grinds painfully into irrelevance.

↳ Systems should enable your team. Not replace their judgment.

Which of these feels most uncomfortable for you to apply?

That’s probably the one worth starting with.

Until next week,

Kinza,