Netflix case study

Rani Molla June 23, 2020
How one of Netflix’s biggest mistakes helped build its weird
It’s basically a requirement for any company — and especially for tech companies in the
last few decades — to boast about having a unique culture and corporate values.
That doesn’t mean those things have much to do with the way the company operates.
Netflix, for better or worse, is different: The leaders of the streaming company take their
culture very, very seriously. They credit it with the success they’ve had upending the media
world and forcing giants like Disney, Apple, and AT&T to chase after Netflix. They expect
its 7,000 employees to take it seriously, too.
And so for the first episode of Land of the Giants: The Netflix Ef ect — our new seven-part
podcast about the company and the impact it has made on Hollywood and the world — we
wanted to dive into Netflix’s culture.
The company was happy to talk about it. Netflix has long been known for its “ culture deck”
— a slideshow about its HR philosophy it made public years ago and that has been broadly
influential in the startup world.
And CEO Reed Hastings has a book — No Rules Rules — coming out this fall about Netflix’s
culture. He thinks you may want to run your company the way he does.
When we told people outside of Netflix that we were making an episode about the
company’s culture, we often got blank looks. But when we told current and former
employees about our plan, they got excited. Netflix can be a weird place to work, and most
people who don’t work there don’t get how weird it is.
For instance, Netflix uses its own cult-like language, like “keeper test” and “sunshining.” It
also pays employees top-of-the-market salaries and gives them perks like the absence of an
expense policy — employees are just supposed to use common sense. And it encourages
workers to meet with recruiters from other companies so they can figure out what the top
pay is for their position.
The company also tells employees that they should think of themselves as members of a
pro sports team, not a family. Which means they should expect to be replaced by better
performers for their spot if Netflix can find them. And it often goes out of its way to tell
employees when a coworker has been dismissed and why. 1/3
The downside of that kind of intensity and pressure can be employees who feel
overwhelmed and insecure. Wall Street Journal reporters Shalini Ramachandran and Joe
Flint did an excellent job in 2018 of documenting the difficulty some Netflix employees had
with the company’s culture, which the Journal characterized as “ruthless, demoralizing and
transparent to the point of dysfunctional.”
The upside is a company where employees feel they have meaningful autonomy about the
way they work, and the power to get things done.
One of Netflix’s overarching tenets, for instance, is “freedom and responsibility” — the
ability to make decisions on your own, with accountability. Chief Content Officer Ted
Sarandos said that’s what enabled him to lead a pivot into original content in 2011, by
spending $100 million for two seasons of House of Cards, sight unseen and without
permission from his boss.
“I told Reed about the deal after we did it,” Sarandos told us.
Another tenet — “farming for dissent” — came out of one of the company’s biggest failures.
You might remember it as a punchline: Qwikster.
The short version: In 2011, Hastings wanted to move his company from its core DVD-bymail service to online streaming, which was growing quickly but was still a smaller part of
his business. So he tried splitting Netflix into a DVD business and a streaming business
named Qwikster. Which meant that if his customers wanted the same services they were
already getting before, they would have to subscribe to both and end up paying 60 percent
Netflix veterans still wince about the experience: The company was skewered on social
media and by SNL. Its stock dropped 70 percent, and more than 700,000 people canceled
their subscriptions.
Eventually, Hastings admitted that Qwikster’s name, the price hikes, and the way the
company talked about it all had been a huge blunder. He rolled back the changes.
But in Hastings’s narrative, the failure was useful for Netflix’s culture. He thinks that many
of his top employees could have told him he was wrong but were too afraid or at least too
in awe of their CEO’s former successes to say anything.
“Everyone knows the tale of the self-absorbed, arrogant CEO who doesn’t listen. And
there’s an element of that, because we have been so successful at so many things before
that,” Hastings told us earlier this year at Netflix’s offices in Los Angeles. “But the more
subtle one is that I had been so successful before that most of the executives thought … ‘But
Reed has been right on so many things. I’ll bet he’s right on this one. And I’m just not
seeing it.’” 2/3
After the debacle, Hastings instituted “farming for dissent,” a formal practice where
employees are supposed to run their big ideas by colleagues and have them tell you
candidly — on a Google Doc that’s open for everyone to see — what’s wrong with it. It’s
considered integral to the company that your coworkers tell you what they really think of
your idea, even if — perhaps especially if — you’re their boss.
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