In this episode, I unpack the lessons from “No Rules Rules” by Reed Hastings.
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Full Transcript:
Talented employees have an enormous amount to learn from one another, but the normal, polite human protocols often prevent employees from providing the feedback necessary to take the performance to another level. When talented staff members get into the feedback habit, they all get better at what they do while becoming implicitly accountable to one another, further reducing the need for traditional controls. I’m Mickey Mellen this is Stacking Knowledge, and that was a little bit from Reed Hastings, he’s the founder of Netflix, his book, No Rules Rules, and he talks a lot about
Reducing the need for traditional controls like you talked about that initial thing. So let’s dig in the intro section before we get to the first chapter They have like an intro chapter and there’s a lot of great stuff in there They start with saying Netflix culture is weird, which as he gets into it is weird, but it’s kind of awesome We’ll get into some of the weird things. He says they have one rule They show a slideshow to new employees they say unlike many companies. We we practice adequate performance gets a generous severance package
Adequate performance gets a generous severance package. Meaning if you do an adequate job for them, that’s great. They’re going to see on your way. Another thing to talk about is the keeper test. I love the keeper test. This is something I’ve used a good bit just to think through our staff over the years. The keeper test is where you think about an employee and just say to yourself, which of my people, if they told me they were leaving for a similar job at a peer company, would I fight hard to keep it Netflix? So as you think of your staff, if they were picture them coming, you saying, Hey, I’ve got another job. I’m leaving. How many would you say, I’m so sorry to see you go or
Some would you be so sorry to see you go or some would you be kind of quietly relieved that they’re leaving? Like how does that work? And if you would be relieved they’re leaving, then why are they still there anyhow? You should look at maybe making changes sooner than that. They talk about safe environments. They reference a book from 2018 called The Fearless Organization from Amy Edmondson where she explains, quote that, if you want to encourage innovation, you should develop an environment where people feel safe to dream, speak up and take risks.
The safer the environment, the more innovation you will have. And so again, if there’s people that shouldn’t be there, you need to make it a safer environment. He also talks about in the intro here, the Netflix vacation policy and tracking. I love the way they do this. We’re the same. We don’t have a vacation policy per se. We trust people to do it right, but they have a nice analogy in here. So he says their policy for vacation tracking is quote, there is no policy or tracking. He says, there’s also no clothing policy at Netflix, but no one comes to work naked. So the lesson is you don’t need a policy for everything. If these are grownup adults and they’re the best of the best you’ve hired,
You don’t need to tell them what to wear. They’re not going to come to work naked. You also don’t need to tell them what time to take off. They’re going to get their job done and take the time they need to stay healthy. And it all kind of works out. They talk about honesty always. He says, as a leader, no one in your group should be materially surprised of your views. So your people should know all your views on things. They talk about how it’s a different type of workplace. say policies and control processes become so foundational to our work that those who were great at coloring within lines were promoted while many creative mavericks felt stifled and went to work elsewhere.
It happens in lot of places where those that could color within the lines that were adequate got promoted, but the creative mavericks went to work elsewhere and they wanted to keep the creative mavericks at Netflix there. And so they’re different than that typical kind of work. So about increasing candor, get into that. A lot of this will get into more in the book here, but the candor I talked about that just, that was the quote off the top that talented employees have an enormous amount to learn from one another. I’m not gonna read the whole quote again, but the candor helps a lot there too. And then lastly, in this first section, he says, lead with context, not control.
and coach your employees using guidelines such as don’t seek to please your boss. You’re trying to get things done, not necessarily get approval of your boss. Certainly you don’t want to go against your boss, but if you’re just trying to just be a people pleaser the whole time, you’re not going to be that maverick they need to get things done. So section one, he calls it first steps to a culture of freedom and responsibility and to build up the talent density. He says talent density, he said talented people make one another more effective. Like the more super high talent people you have, they’re all going to make each other better.
He says, 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. If you have a team of five stunning employees and two adequate ones, you know so five great ones and two adequate employees with them that might drag them down, the adequate ones will do five bad things. They will sap managers energy, so they have less time for the top performers. The manager is always going to be having to deal with the two adequate employees and help them out versus pushing the five great ones to greatness.
Reduce the quality of group discussions, lowering the team’s overall IQ. will force others to develop ways to work around them, reducing efficiency. It will drive staff who seek excellence to quit. So if you’re seeking excellence and you’re surrounded by some people you don’t like, you may quit. And it’ll show the team that you accept mediocrity and that will multiply the problem. Like, he accepts mediocrity. Cool. I’m mediocre. can, I can go there too. So trying to stay with just stunning employees is tough. he talks about performance is contagious. He shares a little bit from Will Felps who said,
He found that when other team members were exceptionally talented and intelligent, one individual’s bad behavior brought down the effectiveness of the entire team. In dozens of trials conducted over month long periods, groups with one underperformer did worse by other teams, worse than other teams by whopping 30 to 40%. So you have a group of high performers and other group of high performers with one, what they say, know, just less, less effect, one under performer. And it affects the whole team by 30 to 40 % because of the reasons we talked about this manager can’t focus on the great players.
reduces group discussions, drives people to quit, lots of bad things going on. So the first section was yeah, first build up talent density, second chapter is then increase candor. This whole chapter kind of reminded me of Gary Vaynerchuk. He has this idea of kind candor. And he said in Gary’s case and not in this book here, but he talked about how for years he was so big on being friendly and nice to people, he didn’t have candor because he was used to seeing people with candor that were just jerks. They were mean and told people exactly what they thought with no care. And so there’s kind of a place in between where we can be candorous and say things, but do it with kindness as well.
a great place to be. For Netflix, back to the book here, he says, quote, at Netflix, it is tantamount to being disloyal to the company if you fail to speak up when you disagree with a colleague or have feedback that could be helpful. After all, you could help the business, but you’re choosing not to. So people that are afraid to speak up, you’re being disloyal to the company by not being willing to speak up because you have things that could help the company and you’re holding it back. Like that’s disloyalty. It’s tough. ⁓ We get four feedback guidelines.
Just four simple ones here for giving feedback. You should always aim to assist and be actionable. So you’re obviously your feedback should be trying to help, not just tear people down. It should be actionable. So here’s what happened. Here’s what you could do different. And then when receiving feedback, which can be tough to do sometimes, you think you’re doing your best and people offer suggestions, but you should be appreciative, appreciative, and then you should choose to accept or discard it. You don’t have to take all the feedback you get necessarily. You can discard some of it, but you should at least appreciate it and look at it and then decide what you want to do with it.
So yeah, so chapter two was then increase candor and the next chapter is now begin removing controls. This is controls like we talked about a little at the beginning, removing the vacation policy. He said, a suggestion from an employee led us to make a change. He pointed out the following. said, quote, we’re all working online some weekends, responding to emails at odd hours, taking off an afternoon for personal time. We don’t track hours worked per day or per week. Why are we tracking days of vacation per year? And they were like, that’s a good point. It doesn’t make sense. It reminded me of the book, Back to Human.
They had quote in that book. It said, the line is blurry between work and life. So we have to make sure that our people can do personal stuff while on the job. Cause I know they’re doing work things when off the job. ⁓ Ali, my business partner, she has a thing she calls scheduled variety where she plans in her day to like, I’m going to take some time off here to be with the kids. And I’m going to work more in the evening to catch up. And it’s okay to kind of plan that out. People aren’t tracking this all that much. And so why are you tracking the days they take? He talked about in this chapter too ⁓ leaders must model big vacation taking, you know, if you’re telling your team, you need to take time off to rest.
Leaders need to do that as well. And that’s something I’m not always great about, but something I need to do more there too. then he says freedom from vacation policy adds value, even if no one uses it. So even if people don’t use vacation enough, the fact that is there can be helpful. And they get into some of that in the book. ⁓ they talk about the unlimited holiday and how you actually can do it. says it’s easy to implement. You just have to create an environment of trust. And ours is built through three company rules. One, always act in the best interest of the company Two, never do anything that makes it harder for others to achieve their goals.
And three, do whatever you can to achieve your own goals. So as long as you’re doing this, always doing the best interest in the company, not side tracking others and reaching your own goals, then the holiday is kind of irrelevant. Uh, the second part of that chapter, talks about removing travel and expense approvals. I won’t get too much into that, but three things they say in this chapter, they say spend company money as if it were your own. So again, trusting people to do the right thing and not watching them and watching every penny. Uh, the second one is act in Netflix is best interest. So similar kind of thing, but what is the best spend you can do on this travel?
And then the comeback people have those. Yeah, that’s great. But some people are going to cheat and you’re right. Some people are going to cheat the system and try to hose the company and you need to get rid of them when they do. but they have a section called some people will cheat, but the gains outweigh the losses. And so knowing people will cheat. That’s okay. Knowing that overall it’s going to work out better and you just deal with those people when it happens. section two talks about next steps to a culture of freedom and responsibility. Talks about fortifying talent density and paying top of market for prices, you know, offer rockstar pay.
and then give generous and appropriate raises so other firms can’t touch them. You see that a lot in that industry. This is kind of different than what I work in. So I won’t go too long in here. But we see companies like Netflix or Google, whatever, give people top dollars, but then not give them raises enough along the way so they can, as their value increases and they get their little 5 % raise, they give some examples in the book, they’ll just go somewhere else and get that 50 % bump that they really were due because of the value they brought. And so Netflix tries hard to offer that pay and offer the increases as well. I can’t remember if it’s later in the book or not.
They talk about like when a headhunter calls and they’re like, someone says, I got offered another company offering a big bump in price to move over there. They’ll look at that price and usually match it. You know, they’ll encourage them to go look around these points where they say, go look, see what the market says you should be paid. Let’s make sure we’re paying you enough there. They want to make sure the right people get paid adequately so they don’t lose them. You know, as of this writing right now, Apple’s just lost like five or six great, great employees on their team. You know, big leadership folks, not sure why, but I wonder if this is part of it where they just couldn’t quite get the recognition they needed there. And so they’re moving on somewhere else fresh.
versus rising appropriately there. ⁓ Chapter five is called pump up candor and open the books. So give more opening the books to the team to see what’s happening. Lots of lessons in here from the book, The Great Game of Business by Jack Stack. If you’ve not read that, The Great Game of Business is fantastic. ⁓ But the reason you want to open the books to a degree and how far you open it is up to you guys. We’ve opened ours up a good bit in the last couple of years so the team can see what’s going on, how much revenue is coming in, what our profits look like. We want them to be involved in that. But the quote in the book here says,
However, opening company secrets to employees had another outcome. It made our workforce smarter. When you give low level employees access to information that is generally reserved for high level executives, they get more done on their own. They work faster without stopping to ask for information and approval. They make better decisions without needing input from the top. And so as you pumped up the candor, chapter six is now release more controls. We talked about this a little bit earlier, but it says don’t seek to please your boss, seek to do what’s best for the company. Don’t go against your boss, but.
You know, just do what’s best for the company. Again, the freedom they give, you shouldn’t have to be asking your boss things. they talked about this, when the author was talking to, Sheryl Sandberg, it said afterwards when Sheryl and I debriefed. She said, the amazing thing was to sit with you all day long and see you didn’t make one single decision. ⁓ and going further, says that at Netflix, you share all the context of your decision. You’ve done the groundwork. You don’t need approval. It’s up to you. You decide. And so again, they’ve empowered their staff to make the right decisions. They, again, they only hire rock stars. They try their best to, and then empower them. And so say, Hey, if you’ve,
figured out what the decision should be. Go do it. You know, don’t come ask me for every little thing. And again, when he was interviewing Sheryl or Sheryl Sandberg was interviewing him, she noticed that like I was with you all day. You didn’t make decisions for your team. Like they were able to do it themselves. the takeaways in this chapter, they had takeaways at the end of each chapter. I’m not going to hit many of those, but this one had nice tech takeaway. it said in a fast and innovative company, ownership of critical big ticket decisions should be dispersed across the workforce at all different levels, not allocated according to hierarchical status. So again, the,
Big ticket decisions should go to the person that it affects most not to their bosses, bosses, boss. Like if they’re the one doing it, let them make the decision. And section three, ⁓ in the book here is techniques to reinforce a culture of freedom and responsibility. So max up talent, talent density. so this is really getting into the keeper test. We talked about earlier, should this person stay, you know, a lot of companies say that they are, they treat their employees like family and that’s not really accurate in most cases. Like we treat our team great, but it’s different than family. It’s really a team we’re a team they say the problem with that here in the book, he has a section called
A family is about staying together regardless of performance. for, yeah, you want to stay with your family no matter what your team performance matters. You know, it’s going to affect what’s going on. And so they, they have another section called from family to team. And so they say here quote at Netflix, I want each manager to run her department like the best professional teams. Working to create strong feelings of commitment, cohesion and camaraderie while continually making tough decisions to ensure the best player is managing each post. So of course, tough decisions means that the worst play is not the best players, manning a post they need to go.
⁓ They get more into the keeper test here. I think it’s basically the same thing. Actually, I’ll read this quote. It’s a little bit different way of looking at it. It says here, quote, if a person on your team were to quit tomorrow, would you try to change their mind or would you accept the resignation perhaps a little 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. So if you think through this, you’re thinking through your team and you think of someone say, yeah, if they quit now, I kind of have a little relief that they finally left. Then, then take care of it now. Give them a severance package, get them out and find a star to replace them.
And then from the flip side, if you’re an employee on the team, you should kind of ask that of your boss. They said during your next one on one with your boss, ask the following question quote, if I were thinking of leaving, how hard would you work to change my mind? And just hearing what they say could be, could be super interesting. If I were thinking of leaving, how hard would you work to change my mind? Chapter eight is about maxing up candor with a circle of feedback. He says there’s one Netflix guideline that if practiced religiously would force everyone to be either radically candid or radically quiet. And that’s
Only say about someone what you’ll say to their face. Reminded me of The Office when Michael was talking about Pam and said, I would never say this to her face, but she’s a wonderful person and a gifted artist. And Oscar said, why wouldn’t you say that to her face? And of course that was kind of a funny thing in the office. And they’re saying both sides of it here for Netflix. Only say about someone what you will say to their face. That again is candor as well. It’s good things. tell people when they do well, know, raise them up, but be candid as well. Be politely candid, kind candor as Gary Vaynerchuk would say, but.
But don’t say it behind their back. If you have something to say to them, say it to their face and make it, make it work. Maybe say it privately, depending on what’s going on, but, don’t hide it from them. Um, chapter nine is an eliminate most controls. You know, he wants people to be inspired to work. It says lead with context, not control. You want them all going after the same prize and then just let them go. He pulls in the great quote from Antoine de Saint-Expery who says, I love this quote. I’ve used this a lot. It’s been in a lot of books. It says, quote, if you want to build a ship,
Don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea. So you want people to really build a ship. You can order them to go get wood and give orders and stuff, or just have them dreaming of the ocean. They’re gonna be so inspired to work. It’s gonna work a lot better. And so he talks about alignment. Is your organization highly aligned? And then aligning it on a North Star and getting your team aligned behind you. So he says, I remind myself of what I often tell leaders throughout Netflix. He says this, it’s a longer quote here. says quote,
When one of your people does something dumb, don’t blame them. Instead, ask yourself what context you failed to set. Are you articulate and inspiring enough in expressing your goals and strategy? Have you clearly explained all the assumptions and risks that will help your team to make good decisions? Are you and your employees highly aligned on vision and objectives? So yeah, think of it yourself. If they’re your employees, it falls to you. And you know, that goes all the way up the chain. So make sure if something goes wrong, yeah, maybe they messed up, but why did they mess up? You didn’t teach them well enough. They were overworked. Like there’s some reason you could probably find to help.
prevent that from happening again that you could fix and not just say do better. ⁓ section four is going global, bringing it to the whole world. ⁓ some interesting things here. Really. It’s a lot about, ⁓ cultures is a lot of this. If you’re going to go to different cultures, see what’s happening. And so it says a few headlines here from chapter one is ideas about candor differ greatly around the world. So being candorous, we’re talking mostly in the U S from what I’m saying here, it would be way different other parts of the world. It could, could not go well. He says with less direct cultures, increase formal feedback moments. And so
You know, don’t be so direct in public. Maybe have more formal feedback with them and then everything is relative. You know, make sure you’re flexible and can modify things as you’re going. He talks earlier or we talked earlier even about giving feedback that 4 A approach the aim to assist being actionable and then the other side appreciate and then accept or decline. But he says, when you’re talking about around the world, you had a fifth fifth a so there’s already four A’s aim actionable, appreciate, accept the fifth one is adapt.
your delivery and your reaction to the culture you’re working with to get the results that you need. So always be adapting your delivery and your reaction to the culture to get the results you need. And then wrapping things up, ⁓ he kind of compares this to music. He says, it’s jazz, not a symphony. So this is again, it’d be nice to say this is this perfect system buttoned up and go, but it’s all going to ebb and flow and you got to kind of roll with it. So he compares it to ⁓ jazz and a symphony. says, quote, at Netflix, we are constantly debating our culture and expecting it will continually evolve.
Build a team that is innovative, fast, and flexible. Keep things a bit loose. Welcome constant change. Operate a little closer toward the edge of chaos. Don’t provide a musical score and then build a symphonic orchestra. Work on creating those jazz conditions and hire the type of employees who long to be part of an improvisational band. When it all comes together, the music is beautiful. So again, No Rules Rules from Reed Hastings, a fantastic book. I encourage you to check it out and leave a comment. Let us know what you think. Thanks so much.
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