Netflix CEO Reed Hastings Talks About Scaling A Business (ft Reid Hoffman)

Co-Founder and CEO of Netflix – Reed Hastings – Speaks on Scaling a business (Blitzscaling Lecture w/ Reid Hoffman of LinkedIn)

Entrepreneur(s) Reed Hastings and Reid Hoffman (Paypal, LinkedIn, etc) lecture at Stanford on growing a business and bringing it to speed and scale – with commentary

0:00about eight years ago we were getting tired of new employees joining and i
0:06would meet with all the new employees and go through this hundred-page slide
0:09deck and two out of three really got it and understood and their managers had
0:15properly described to the netflix and one out of three were in shock because
0:19the deck has some aggressive statements like adequate performance gets a
0:23generous severance package and we’re Team not a family and so if you know
0:28that going in
0:29you can love it but if you don’t know it and you didn’t expect it you feel bait
0:34and switched and so the big driver was we realized every candidate should get

0:39it and then of course if every candidates going to get it’s going to be
0:42public so let’s just make it public now as you’re doing scale to kind of keep a
0:46cultural norm as you scale was that was that one of the central tools for doing
0:50that
0:51yes I wouldn’t quite say keep a cultural norm but it was to share and debate one
0:56of the great things are putting things in writing is that makes it more
1:00debatable and so it’s not just hearing a sermon and it’s like okay that’s nice
1:04but you can comment on you know this part here that we wrote down doesn’t
1:08really seem appropriate or doesn’t seem what we do or you know to some degree
1:12it’s a bill of rights for employees which is here’s a set of things that we
1:16the company want to an aspire to operate by and if we don’t you can call us on it
1:22and then we’ll either fix the articulation because it’s too easy to
1:25misunderstand or live up to what we want to so in some ways it’s aspirational and
1:30then by putting it in writing which probably started five years before that
1:35it allows all the people in the company to collaborate on it and to suggest
1:40improvements
1:41what other things do you do to keep a healthy culture at scale
1:45what are the other kind of techniques in addition to the definition of the
1:49onboarding yeah i mean i would say in our first couple years so we’re found
1:54about 20 years ago in 97 to $YEAR when we were in public in 2002 all we were
2:01concerned with is not going bankrupt because the first big internet recession
2:05was 2001 and so we had built up a big expense rate and you know contingent on
2:11future financing and
2:13aztec felt 75% that year and all the venture capitals felt over leveraged
2:17they were barely going to be able to support their existing investments
2:20certainly no one want to take on new ones and so while the year before in
2:252002 raise money was as easy as taking a tin can and shaking it and you know like
2:3150 million dollars would show up in the canyons incredible never seen anything
2:34like it until last year and then the following year after the crash
2:40you know you take your tin-can out and shake it and someone would steal the can
2:43and so was it enormously sharpen shortchange which is why you see so much
2:49talk today about bubble is the memory of no one cares about the bubble they care
2:53about the fall so suddenly we didn’t have enough money we had to lay up a
2:59third of the company in 2001 and we eat into profitability and survived and but
3:09until that point we really spend all the time just on how are we going to get the
3:13business to be brought over dvd-by-mail at the time so how is it going to be
3:17profitable and only after 2002 we realized wow we’re going to survive that
3:23we started think she try to figure out what cultural attributes were there of
3:27what we wanted to work in we didn’t set out to try to say like what’s the most
3:32theoretically efficient culture
3:33what’s the you know in some abstract sense it was literally about us and we
3:39realized that we valued most even more than success was working with really
3:44talented people in a productive way that that joy of excellence was incredible
3:51and of course if you can get that joy of people excellence and talent density
3:57then you’re very likely to win so you know they come together but at the core
4:02was about having dense talent and part of it was after we did this one third
4:06layout it was a hundred and twenty people 280 we had expected to basically
4:10grind to a halt bi and really not be able to make any improvements because it
4:14would take 80 people just to keep the lights on but in fact we got more done
4:19with only 80 people we tried to figure out why and we realized now there was no
4:24more
4:25there was no dummy proofing
4:26necessary and so it was just everybody was going fast and everything was right
4:31we realized with the right density of talent you know there’s very little
4:35process needed and that that was the joyful thing so at first we said well
4:39let’s do a one-third lay off every year that was the key and a and a long-term
4:45winning strategy that’s a long time when you get it might be you know back to the
4:48Blitz Kaylee know and then realized no drinking habits drinking what you want
4:54your gross adds to be doing a hundred percent and you just can’t add to less
4:57like talent density matters so much so then we figured it was not do a layout
5:02every year like that let’s just do continued focus and the big evolution we
5:07came to us for managers they have to each year testify for each of their
5:12people that if that person were trying to quit
5:15they would try to change their mind and so it’s up to the manager to decide you
5:19know yes I would want to change their mind but sometimes you find that you
5:24have people working for you and if they quit you’ll be like out that’s pretty
5:27good and and that’s the case we wanted to proactively not wait for them to quit
5:33but proactively give them a generous severance package performance what what
5:38would the key things about establishing that culture which enabled you to scale
5:42because this is the you know highly aligned loosely coupled part of your
5:47version 2 of the deck so I think you know Pete when we went public we were
5:52150 people buy them in people worried internally now that we’re public
5:59everything’s gonna you know go to shit because so many companies had done that
6:03put in a lot of process be very cautious etc and we’ve made great progress really
6:10every year of pushing back on that and doing something either symbolic a real
6:16that increased employee freedom essentially in scented more variants and
6:22in what we’re doing and we realized if we’re going to run really loose like
6:27very little rules then you do want to set a broad context so we set context
6:32and this is what reads referring to which is we added essentially a chapter
6:37to our slide deck which is context not come
6:40roll and so we try to get managers to inspire and lead people rather than
6:46micromanage them and they inspire and lead them through cut setting the
6:50contact what are we trying to do what are the constraints you know is that a
6:54really big problem or a little problem must be done right or we do an
6:58approximate version fix later there’s a lot of context to any problem area and
7:03if you get good at setting context then you don’t have to direct the micro
7:07specifics but it’s an art so their context of the problem and then there’s
7:11context about behavior which is really the the culture which is one of the
7:16behavioral norms in terms of honesty and sharing and forthrightness but people
7:21usually want to be able to do something like to like a bold new innovation
7:25usually require somebody going this is my like this is my idea i’m driving it
7:30home
7:31how does the setting the context than that kind of innovation how those line
7:35up and what do you do about that
7:37well I think you might be mixing with the manager shares a lot of context but
7:41a lot of people make decisions and so you know and we definitely have decision
7:46owners there’s almost nothing by consensus but you gotta know the context
7:50and then you make decisions and have a lot of things happen that I don’t even
7:54know about about different deals are different things or hiring you guys are
7:59gonna get lucky and and meet with Marissa in a week or two and one of the
8:04things that saddened me when she went to yahoo which was very brave of her to do
8:08was this idea that she was going to review every resume you know to raise
8:12the bar on hiring to me that’s a suicidal methodology for a senior
8:17executives you got a thousand people and you’re so tactically buried trying to
8:21you know do a thousand resumes and I think what she was going for and you can
8:26ask her is a symbol of I care about the details but it would you a better way to
8:31do this there are there are better ways to do symbols and so like I don’t review
8:36resumes I don’t block hires i look at it it’s my job is to evangelize the
8:41benefits of super great talent density but we don’t even try to hire perfectly
8:46because you know your when you are interviewing at six or eight hours with
8:50someone you know it’s something
8:52but you know them so much better after they’ve been in for three months so I’m
8:56like you know if you have an instinct you want to try try take the person in
8:59if it doesn’t work out we’ll give them a severance package will move on you know