#228 Erin Meyer- Episode Notes

Big Idea’s

The two principles that the entire Netflix success story is built on is that employee freedom breeds innovation and process kills flexibility.

When Erin was working with Reed Hastings on the book, No Rules Rules, Reed was eager that the book would explain the culture he was going for, the wins, and the things that didn’t work out well in the organization.

“When I was conducting these interviews with these 200 employees, they were really candid with me about how things played out for them emotionally and gave many stories about what was working and what wasn’t”

When conducting her research project on Netflix’s corporate culture and working with Netflix CEO Reed Hastings, Erin started off skeptical on the core principle instilled at Netflix that “adequate performance gets a generous severance.” Throughout her interviews and extensive research, Erin was able to clearly understand the importance of this within the corporate culture.

“I always say, it’s like eating your vegetables. Adequate performance gets a generous severance, that high talent density some people love it and some people hate it, that’s your spinach. Candor, all of that candid feedback, that’s your squash. Some people love it and some people hate it. But the thing is, if you eat your spinach and you eat your squash, then you get to eat your cake.”

2:40 Erin’s Writing Lessons

When writing her first book, The Culture Map, Erin found that she produced her best work in the morning. When writing her second book, No Rules Rules with Netflix’s CEO Reed Hastings, Erin felt external pressure to produce work that was really good really fast. This caused her to ask for external feedback she says put her “brain in a box”. Partway through writing, Erin gave herself permission to not ask for feedback from others and lifted the weight of external pressure from herself.

“What I learned about myself is that to have fresh thinking, I need to have really clear big periods of time but beyond that to feel free of the pressure of judgement around me”

6:48 Erin’s View on Feedback

While feedback is a core innovation principle at Neflix, Erin found that personally needed to know that she was free of judgement when she was coming up with ideas so she could “do things on the edge of stupid or the edge of crazy.”

“I certainly got very important feedback at certain moments, but not when I was trying to innovate at the same time”

Each time Erin has written a book she has people that she really trusts who give her feedback throughout. Erin’s husband and business partner reads everything first because he tells her if she has “dropped over the edge of stupid”. Once Erin felt she had a good manuscript for No Rules Rules, she worked with David Champion, her Harvard Business Review editor because he is very critical, direct, and supportive.

“There is no point in having somebody who is going to give you feedback but then think that everything you do is wonderful”

9:54 Being a Voracious Culture Learner

Since first graduating from undergraduate school, Erin has been passionate about understanding cultural differences. She describes her ‘first love’ as learning about national cultures and how people in different parts of the world were motivated by different things. Learning about the corporate culture within Netflix developed her passion for learning about corporate culture.

“What I loved about when I came across the Netflix culture, was here was a company who told it like it is. Here was a company who dared to take a stand and dared to look at the real tensions and dilemmas that their employees were wrestling with on a daily basis”

12:16 The Structure of No Rules Rules

Erin wanted to conduct a research project to see what was really going on within Netflix’s company culture. While many of Reed’s principles are around transparency and farming for dissent, he was eager that the book would explain the culture he was going for, the wins, and the things that didn’t work out well in the organization.

13:46 Erin’s Initial Skepticism

When Erin first came across Netflix’s culture deck, she describes feeling provoked when she saw one of the slides. This slide said, “At Netflix, adequate performance gets a generous severance.” This slide among others puzzled Erin as to how they played out within a company, and she went into the research project as a skeptic.

15:50 Reed’s Overriding Lessons for Netflix

Erin describes Reed’s experience within his first company, Pure Software, and how this experience taught him about the importance of guidelines for employees. From no rules to too many specific rules, when Reed started Netflix he had two overriding lessons that were driving him.

“The first one was, employee freedom breeds innovation. The second was, process kills flexibility. We can really see that the entire Netflix success story is built on these two simple lessons that he learned in his first company.”

18:59 Curing the Industrial Hangover

Erin’s biggest lesson from the entire project is that most company cultures were set up for the industrial era and that they are operating with this “industrial hangover.”

Erin describes how the industrial revolution was all about error prevention, replicability, and consistency, but in today’s creative, information age, there are many more areas that need to be focused on innovation and flexibility.

“If you’re working in a creative area, if you are going for innovation and you can have some small mistakes along the way then we really need to get out of this industrial way of think and recognize that the world has moved on”

22:23 Talent Density

Talent density is based on the ‘rockstar principle’. The rockstar principle is based on research that was done on software engineers in the 60’s that showed if you had one amazing software engineer that this person could deliver 10-25 times the value of an average software engineer.

“The idea at Netflix is that on a team you want to have all rockstars. You want less people who are paid more and then in doing so you have what they call high talent density.”

23:40 High Performance is Contagious

Erin explains how at Netflix, adequate performance needs a generous severance. Medium employees need to be moved off the team to make room for other rock stars to create contagious high performing.

“A lot of people think of an individual performance problem as an individual problem, but it’s not, it’s a systemic problem.”

26:59 The Keeper Test

Erin explains how at Netflix there is no process or rule for when an underperforming employee is let go, but there is a principle called The Keeper Test. The Keeper Test means that on an ongoing basis, the manager should do an individual exercise where they should imagine that everyone on their team is coming to them saying that they are leaving, and evaluate the emotions that arise from this whether it be relief or a desire to fight to keep them.

“It sounds a little bit harsh but I do think that doing this exercise with yourself as a manager gives you a lot of clarity as who should be on your team and who you should replace”

29:23 The Japanese Saying – Kuuki Yomenai

Erin’s first book, The Culture Map, talks about this principle, kuuki yomenai which means someone who is ‘unable to read the air’ or who is unable to pick up the subtle message in the atmosphere. Erin describes an experience she had while giving a talk in Japan where she recognized body language cues that listeners who had questions would use, that she would have otherwise overlooked.

It was such an important learning experience for Erin because she was able to apply this lesson to her classes she teaches at INSEAD Business School that have multicultural students.

33:17 Paradigm Shifts in Her Career

In regards to Netflix’s culture, Erin was first unsettled when it came to the candor within the culture.

“What I did dislike, was the idea of people giving lots of candid feedback to one another throughout the day”

However, Erin learned the importance of candor when giving a talk to 500 Netflix employees. Erin experienced feedback from a participant about the way she was conducting the discussion, in the middle of her talk. Erin credits this woman for saving her presentation.

“Never before had someone given me feedback right in the middle of a keynote in front of a group of of other participants”

This experience showed her the attributes around being candid in a corporate work culture.

“Sometimes it’s uncomfortable. Sometimes the receiver doesn’t like it, but if it’s done with positive intent, it’s almost always helpful”

41:09 Netflix’s Policies

The Policies at Netflix include:

The expense and travel policy at Netflix is ‘act in Netflix’s best interest’
The maternity leave policy is ‘do what is best for you and your baby’
The vacation policy is ‘take some’

“In the absence of explicit rules, people look around the office for guidelines as to how others are behaving”

43:58 The No Rules Rules at Netflix

Most of the processes that are included at most companies are not incorporated at Netflix.

There is no management by objective
There are no KPI’s
There are no annual bonus reviews
There is no salary bans
There is no process for promotion

“Those are the wrappings at most companies that create high levels of efficiency but also keeps the organization from being flexible when the environment changes around them”

45:36 The Tree Framework

If you have great employees and you have an environment of candor, Erin recommends creating an environment of decision making like a tree.

Erin describes the tree framework as: the chairman is the roots, the senior executives are the large branches at the bottom of the tree setting more context, the lower level managers are the smaller branches on the outside of the tree making the most expensive decisions keeping in mind all of the context that has been set for them.

“At Netflix when they say lead with context not control, what we have is the chairman who is down there in the Earth, in the dirt with the roots. The chairman is setting the direction for the company”

48:19 Reed’s Transparency

Erin says that Reed’s key separating factor of brilliance is his transparency. For example, Netflix announces their quarterly results to their employees before they announce it to the market, which instills a trust and encourages responsibility among their employees.

“As I got to know Reed more, his knee jerk reaction is if you have information you share it because then employees see they have all the information they need to make good decisions, nobody is hiding anything from me and I should behave responsibly for this organization”

53:35 Understanding The Freedom

Erin says that what drives her crazy in interviews is that people always want to talk about the firing without understanding the freedom.

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