The Netflix Playbook
Finally, a Powerpoint presentation worth reading
Hastings' "deck" is a how-to guide for startups. Image: Netflix
It isn’t often that I get convinced to read through a slide deck 128 images long. But after the fourth startup CEO, in this case Jonathan Sposato, CEO of online photo-editing service Picnik brought it to my attention; I sat down to give “Reference Guide on our Freedom & Responsibility Culture” a gander.
The slide deck, which can be found here, contains the distilled thinking of Netflix (NFLX) CEO Reed Hastings about how to run a company.
The presentation offers interesting insights about how he runs Netflix, which by any measure is hitting it out of the park. So I am going to do something that is even more unusual for me, and recommend highly that you read this 128-image-slide deck too.
(Full disclosure here: I am a Netflix member, have been forever it seems, and count the delivery of my DVDs as one of the few pleasurable interactions I have with the U.S. Postal Service. And Netflix Instant? Don’t get me started on how my consumption of Japanese animation and survival shows has skyrocketed).
Hire stars, scrap vacation policies
The overall Netflix approach is to hire stars, pay them at the top of the scale and give them the freedom to do their jobs. Simply adequate talent gets weeded out quickly.
Beyond that, get rid of the extraneous red tape that slows your stars down. For example, there is no vacation policy at Netflix. People take what they need while getting their jobs done. The travel and expense policy is five words long, “act in Netflix’s best interests.”
Freedom underpins how Hastings looks to grow his company and his team. Whereas most companies tend to curtail freedom and add process when they grow, Netflix tries to do the opposite. Hastings is of the opinion that a process driven culture drives the talent you want to keep out of your company.
In the near-term, you can have a highly successful process-driven company with a leading share in its market, but at the expense of the “innovators and mavericks” you want to keep.
When the market shifts, Hastings warns, “due to new technology or new competitors or new business models the company is unable to adapt quickly, because the employees are extremely good at following the existing processes, and process adherence is the value system.
"The company generally grinds painfully into irrelevance, due to inability to respond to the market shift.”
Could Hastings be referring to competitor Blockbuster (BBI)? Blockbuster has had a painful time adjusting to the changes Netflix brought to the market it once owned. The way to avoid chaos as you grow and as complexity grows too Hastings says, is to hire ever-higher performance people. Once you have them, pay them big salaries – period. No bonuses, no free stock options, no philanthropic match.
“Instead, put all that expense into big salaries,” Hastings advises. “Give people big salaries, and the freedom to spend as they think best.” Those are some of the gems, and there are plenty more, including when to fire people, and how to determine those you should keep.
Emulating Netflix
Startup CEOs like Sposato are enamored of the presentation because it gives them something to shoot for. Not just to be the size of Netflix, which is projecting sales of $1.65 to $1.67 billion in 2009, but to be a grown-up public company that nurtures the same fun, creative, innovative culture on which startups thrive.
But whatever the size of the company you run (or slave away inside), Hastings’ take on management and culture should get you to think about how you run your company or team, and what changes might be made. If nothing else, it will make you wish you worked for Netflix.
What a concept, treating employees like the intelligent adults they are. I worked at a slightly similar company, and the employee loyalty was through the roof. And you know what? Hardly any vacation was taken. When you know you have it, it isn't as important anymore. Great deck!
Oh, and for those who can't find the link, it is located in the second paragraph, click the link "which can be found here". 
Even if you don't work at Netflix, one has to admit theat the principles of freedom and responsibility (Together, and intertwined) are what make every entreprenuer successful. That "Culture" is the key message for me in this slide. The rest of the issues resolve easily.
I fail to see how promoting high performers and getting rid of low performers is treating people like trash. I have worked at companies that use "GE style" performance management policies. Under-performers are given coaching and time to improve, and only those who cannot are fired. And at the companies I've been at, under-performers who are fired are treated with dignity, given severance, etc. I doubt you would continue to pay a contractor who was working on your house and doing a terrible job, or give a big tip to a waitress who was rude and brought you all the wrong food. It strikes me that what Netflix is doing is treating their most important asset, their employees, like adults – no silly travel policies, take vacation when you need it, and do a good job.
I am glad my comment has brought out the kind of conversation I was hoping. The all praises singing was making me sick, I am glad there are people who appreciate the value of a human. Taht's right, people are not dispensible like trash. Fess up Netflix and any other money greedy corporations who treat their most important asset people like surface scum.
I can't tell you how many people I know that the mere mention of the word "Netflix" sends them into the zombie zone because of the absolutely annoying and incredibly stupid business tactic of annoying people with pop under ads all over the internet. Whoever the genius was that decided to do this should have a pop under ad placed so far where the sun doesn't shine that it comes out their mouth.
I agree with you about the carnivorous policies. Go talk to people at GE and Cisco Systems which fires the bottom 10% every year.. It never works, they made it to the place where they are dumping high performers, now no one wants to work with anyone else because that time they spend helping someone else may cost them their job. Filthy, no morals money grubbing, eat their young, arse wipes.. People are important and they act like treating them like trash is okay. Time will prove how bad these strategies suck.
Hey, Joe Steinbeck. The 'non-stars' are in the mail room stuffing the red envelopes. Do you think these minimum wagers have the open vacation and expense policies mentioned. Wrong!
Its a shame that such a carnivorous policy is getting praises from everyone. The vacation policy is fine, but to balatanly letting people go if they are not "stars" and proactively train managers to get rid of them. What if all companies started following this prescription, where would all the "non-stars" go or work, in concentration camps. I am going to cancel my Netflix subscription.
i moved to London from LA and mourned the loss of my Netflix from day one – there is a FAR inferior British service called LOVEFiLM that we are forced to pay for and it sucks. NETFLIX DOES IT RIGHT AND DOES IT BEST.
I wondered how I can mail a movie back on Monday morning. Then have the next movie in my queue Wednesday night when I get home from Work. Paying and keeping good people works. Netflix is Awesome.
I love Netflix and their customer service is top drawer, but i wish they would solve their issues with cracked blu-ray discs. There are actually entire websites devoted to customers who receive cracked blu-rays due to the inferior shippng package. You would think they would be able to solve this problem.
The nano-second that Hasting leaves, or even shows signs of weakness, the board of directors will nix everything in that presentation. It's nice that somebody in high places truly understands, but he's very, very alone…
Just had to talk to Netflix to sort out a move and change of e-mail. Not sure if I talked with an hourly or salaried employee but "Nathan" was impressive! Viewed the slides for my Mgmt class after. "Nathan" deserves a raise and 4 weeks vacation time!
I just got my wireless adapter for my Xbox 360 and now stream my Netflix account staight to my TV. I pay 9 bucks a month and get more content and less commercial BS than a $70 TV subscription – plus about 2 movies a week when I'm able to watch them as they come.
OK, maybe a little exaggerated but its a mostly true comparison that will only get better. All in all – Netflix PWNS
To Mathew
It's high pay based on market. So if the market dictates $8/hr for mail room guy, then he'll get a little more. Plus they value high performers so if the guy takes vacations every other day, he won't be there long. I think it's a great idea but finding the people with not only the integrity, but also the high skills is the tough part.
This was very interesting; it’s like a good book you don’t want to put down. It reminded me of “Good to Great”. When I saw 128 slides it sounded a bit daunting, but once I got started I knew I would read it to the end. I think you have to read the slide deck to really appreciate wat Netflix is doing.
If you'd look at the slides the second one says that this applies to the salaried employees. It states, "our hourly employees are important, but have more structured job roles."
@Matthew, Salem, Oregon
I think you failed to read slide two of the linked presentation…
"Freedom & Responsibility Applies to our Salaried Employees. Our hourly employees are important, but have more structured job roles."
The second slide says that this is applicable only to salaried employees, not hourly employees. I suspect the mailroom guy is an hourly employee.
I read through all of the 128 slides and it's very "insightful" to say the least. I would recommend this to all CEO's and key decion makers in large (read "rigid")corporations.
Truly a Lesson !!
So, is it really true that the guy working in the mail room at Netflix is high paid and can take what he thinks is the appropriate amount of vacation. My wife knows someone that works for the local Netflix distribution center, I'm going to ask. Unfortunately my BS detector is flashing here. I suspect that we are only getting a part of the story here.
I do not think that his comments are all encompassing. When engaging in conversation in regards to there company, CEO's seem to forget about the warehouse gurus that might not have a degree in computer technology, or the guy that works 60 hours a week in the call center. I think a lot of the time we forget about the back bone of our company. Even so it was a really good article. I love Netflix it saves me so much money. I actually worked for Blockbuster at one point just to get a discount on movies. Dumb move. But I am now A Navy Sea Bee and when i get home i just want to vegg-out and i hate TV so its worth the couple bucks to stream video to my FLat screen.