Patty McCord

Netflix leadership had a hypothesis: the existing, elaborate system for managing people at large companies was cumbersome and unnecessary.

The system developed by Netflix was developed through years of trial-and-error, and, most importantly, by relentlessly removing and simplifying elements of the traditional system.

“We had come to understand that the most successful organizations in this world of increasingly rapid disruption will be the ones in which everyone, on every team, understands that all bets are off and everything is changing—and thinks that’s great.”

McCord particularly dislikes the idea of “empowerment”, seeing it as a well-intentioned but ultimately band-aid solution to a structural problem.

“There is so much concern about empowering people only because the prevailing way of managing them takes their power away… A company’s job isn’t to empower people; it’s to remind people that they walk in the door with power and to create the conditions for them to exercise it.”

Her thesis: a business leader’s job is not to build loyalty, worry about employee happiness, and help employees with career progression. It is to “create great teams that do amazing work on time. That’s it.”

The following principles what McCord believes are the principles that allowed Netflix to succeed in creating that working atmosphere.

TLDR

  1. Open, clear, constant communication
  2. Radical honesty: telling the truth in a timely fashion, face-to-face
  3. Have strong, fact-based opinions; debate vigorously; test rigorously
  4. Make decisions based on what is best for the customer and company
  5. Give hiring managers the power and freedom to build a team of high-performers

The Greatest Motivation is Contributing to Success

“Great teams are made where very single member knows where they’re going and will do anything to get there.”

McCord argues that people aren’t motivated by perks. They may enjoy perks, sure. But they come into work energized every day because they want to tackle difficult problems with smart people.

“You want them to wake up in the morning thinking, God, this is hard. I want to do this! Being given a great problem to tackle and the right colleagues to tackle it with is the best incentive of all.”

People like to work with top performers, and low-performers can ruin a team. So only hire top-performers. Don’t be shy to let go of people who aren’t performing.

Paul Graham also writes about this with regards to Yahoo:

“In technology, once you have bad programmers, you’re doomed. I can’t think of an instance where a company has sunk into technical mediocrity and recovered. Good programmers want to work with other good programmers. So once the quality of programmers at your company starts to drop, you enter a death spiral from which there is no recovery.”

McCord says she learned this in 2001, when they had to lay off a third of the company after the dot-com bubble burst. Netflix’s business suddenly boomed when the cost of DVD players dropped, and they had to do tons of work with just two-thirds of their former staff — and yet the team was happier and more productive than before, because only the top performers remained.

Another way to keep motivation high and teams moving fast: removing barriers. This means fewer layers of middle management.

“We wanted to keep management flat because that gave us so much speed. After we’d had to let many middle managers go in our big layoff, we had noticed that everyone moved much faster without all of those layers of opinions and approvals.”

Every single employee should understand the business

Instead of rules and procedures, give people the freedom and information they need to operate in the way that best benefits the business.

People can’t benefit the business if they don’t understand how it works.

Investing in “professional training” is pointless if the employees don’t understand how the business runs.

“People need to see the view from the C suite in order to feel truly connected to the problem solving that must be done at all levels and on all teams, so that the company is spotting issues and opportunities in every corner of the business and effectively acting on them.”

This knowledge gives employees what they need to be highly productive in the right direction.

Top talent = speed. Top talent + understanding the business = velocity.

Humans hate being lied to and being spun

“Part of being an adult is being able to hear the truth. And the corollary is that you owe adults you hire the truth. That is actually what they want most from you.”

Give people feedback candidly and in a timely fashion. This allows them to address it as soon as possible.

In companies with regular performance reviews, managers will often fail to provide feedback in a timely fashion, leaving it to be discussed later in the performance review. This hurts both parties: the employee doesn’t hear the news until far later (and it often affects their compensation) and the manager doesn’t get improved performance from the employee until after the review.

The best feedback must be about behavior, not character traits. It should be actionable. It should not be hurtful. The person receiving feedback should understand what they need to do to remedy the issue.

Netflix executives did an exercise called “Start, Stop, Continue” as a way to share feedback with each other. As the name suggests, you share one thing you want the person you’re addressing to start doing, stop doing, and continue doing.

Feedback must go both ways. Employees should know they can give honest feedback without repercussions.

“Employees should be told never to withhold questions or information from you or their direct superiors. As a leader, you should model this, showing, not just telling, that you want people to speak up and that you can be told bad news directly and disagreed with.”

An interesting aside: McCord expresses a distaste for anonymous surveys, explaining that “they sent the message that it’s best to be most honest when people don’t know who you are.”

Debate Vigorously

Open, vigorous debate enables teams to understand and consider both sides of decisions, prevents management from ruling unchecked, and allows you to interrogate your data to understand what it’s saying.

Don’t debate just to debate – instead, try to figure out why someone believes what they believe.

Be prepared to lose your case and admit when you do.

Be wary of excellent orators who can put together a compelling case but are often wrong.

“The main reason the company could continually reinvent itself and thrive, despite so many truly daunting challenges coming at us so fast and furiously, was that we taught people to ask, “How do you know that’s true?”

Build the company now that you want to be then

Have a vision of where your team and product should be down the road and hire accordingly.

A company is like a sports team, not a family.

“Just as great sports teams are constantly scouting for new players and culling others from their lineups, our team leaders would need to continually look for talent and reconfigure team makeup.”

Managers should lead their hiring processes. They are not career planners. They are the conductor for their team. Their job is to ship great products in a timely manner. Career planning for their employees is a distraction.

Someone really smart in every job

Sometimes you need to let smart people go if they aren’t right for the job you need done.

Keeping somebody smart but having them half-do a task they aren’t great at is a disservice to the company as well as the employee.

McCord talks about several occasions where she let someone go but referred them to roles at other companies that she thought they’d be a great fit for.

Someone very smart in every job improves happiness across the board. People want to work with talented people.

Treat everyone with respect–even candidates for employment. You might hate them, you might love the person they talk to about their interviewing experience. You want them to say great things about your company.

McCord argues against using retention as a success metric for team-building.

“Retention is not a good measure of team-building success; having a great person in every single position on the team is the best measure.”

Pay people what they’re worth to you

Netflix compensates at or above market rate for key roles.

A top-choice candidate is worth a high salary.

Consider that by rejecting a high salary offer for a top-candidate, you get the following outcomes:

  1. You can hire your second-pick candidate, who might not be a significantly worse fit
  2. Your top-pick candidate goes to a competing firm; so not only do you NOT have their talent, another company does — double damage against you
  3. You don’t hire your second-pick either and search for another top-pick candidate but at a better price. Which could take months! The lost productivity (the work not being done by the employee you should have hired + the efforts of your employees still trying to fill that role) will far exceed whatever you denied the top-pick candidate in salary

“If you focus intently on hiring the best people you can find and pay top dollar, you will almost always find that they make up much more in business growth than the difference in compensation.”

If you can’t offer to pay every position a top-dollar salary, then pay top-dollar for the roles that are most crucial to your success.

The art of good goodbyes

Be totally honest with your employees about their performance and prospects.

Don’t be afraid to let go of employees who aren’t the right fit anymore.

Give the people you let go of recommendations in what you believe they’re good at. Just because they’re not right for your company doesn’t mean they aren’t right for any company.