^{_{No Rules Rules suggests that leaders in innovative industries should focus on hiring top talent, encouraging them to be honest and then to remove controls and procedures to let their employees produce their best work.}}

Get the book here: No Rules Rules by Reed Hastings, Erin Meyer

Key Idea #1 – Lead with context instead of control

This book is based upon the premise: Lead with context, not control. What that really means is to give people the freedom to make decisions on their own accord, but don’t leave them without the tools and knowledge to help them make the best decision for everyone.

When you lead by control you tell others what to do. You make sure people get approvals before they do things, you clearly lay out what needs to be done and you monitor progress. Whilst this is not a wrong way of leading any organization by any means – if you’re aim is to reduce mistakes and errors this is still probably the best way – if you’re a company like Netflix in a fast moving industry, you don’t have time to get caught up on small details.

Leading by context gives people the freedom and responsibility to make decisions they think are best. Let’s imagine you’ve tasked someone with producing a new product, if you led by control you would monitor them closely, review things regularly and make sure they are fitting a tight-brief. Leading by context, however, would instead involve laying out the company’s aims and goals, the type of budget they would have and then leaving them to it.

Key Idea #2 – Be careful where you implement these ideas

Whilst this book has many valuable points in it, it’s imperative to make sure you only use them in the right context, and the book makes a clear point about this too.

These ideas work well in an entrepreneurial, fast-moving culture. If you operate in a culture similar to Netflix where speed matters and innovation is important these tips can help you and your staff be creative.

However, if you’re in the industry of reducing and removing mistakes, many of these ideas probably won’t be useful and you’re better off sticking to a culture which places emphasis on controls and risk reduction.

Key Idea #3 – Build up your talent density

At most companies, policies and controls are put in place to deal with employees who exhibit sloppy, unprofessional, or irresponsible behavior. However, Netflix approaches this problem differently; if you have an organization of high-performers who are less likely to cause trouble, most controls can go.

Netflix found this out after having to make a series of redundancies during their early years. After keeping only their “top-performing” employees they found that although there was less talent overall, the talent that remained was more “dense”, meaning that although there were less employees, the overall talent did not reduce hugely as the best employees remained.

After this episode of redundancies, Netflix decided to build their teams around the principle of talent density. They’ve found it’s better to have fewer “superstar” employees than multiple adequate ones.

Superstar employees are those who are hard to find but provide immense value, the concept of “superstar employees” has been observed in the programming scene with a study that took place in Santa Monica and found that the best programmer weren’t slightly better than the worse, they were 20x faster at coding, 25x faster at debugging and 10x faster at program execution.

When you have adequate performers in a team, you might think that it would not matter too much; however, the book suggests that they’ll sap managers energy, need handholding and drive the excellent staff to frustration and quit – top performers want to be around likeminded people, if they find they are being “dragged-down” they’ll leave and go elsewhere.

This is also backed up by research by the University of New South Wales – they found that teams with actors who played typical troublesome roles seen in groups (the jerk, the pessimist, the slacker) dragged down the performance of the whole team. Instead of the talented individuals standing up to them, the negative ones instead influenced everyone on the team – the negativity was contagious. I’d suggest checking out my summary of Think Like a Monk by Jay Shetty which looks at this idea of contagious negativity in a bit more detail.

But, it’s important to remember, when you demand the top staff, you also need to offer the top pay. Netflix run on the idea that because one individual is likely to be 2x or even 10x better than an adequate one, pay them appropriately!

Key Idea #4 – Encourage candor and honesty

Once you have a team of talented staff, there is a huge opportunity to learn from one another, however, that learning process can be negated because of peoples fear of giving and receiving feedback.

This is where encouraging a culture of candor is important. Candor is about “being honest and telling the truth, especially about a difficult or embarrassing subject”.

People aren’t going to do things perfectly all the time. They might miss things, take different meanings or be less knowledgeable about a certain area. Many times we aren’t aware to these problems, and as a result, we never improve or sort out any issues that have arisen.

If you have a culture where people can express exactly how they feel – with positive intent – problems can be dealt with, lessons can be learned and everyone can move forwards.

Receiving feedback isn’t just something which is a good idea in theory, surveys conduced into the feedback process suggest everyone – even those on the end of it – find it beneficial. The consulting firm Zenger Folkman collected data regarding feedback from around 1,000 individuals and found that whilst the respondents thought positive praise was nice, corrective feedback provided the largest influence on their performance, and as a result they were grateful for it.

But, for a culture of candor to work effectively, everyone must be subject to it. Many firms operate a system where feedback is fed-down. Those at the top are usually giving the most feedback and receiving the least and those at the bottom are receiving the most but giving the least. This paradigm causes problems, however. If junior staff miss something, whilst it might be a pain it can usually be corrected, if a senior member of staff misses something it can cause huge problems.

Whilst Netflix does not have many rules as you’ll see later, they do have the “4 A’s” method which helps give and receive feedback effectively.

Giving feedback

1. Aim to assist

Feedback should be given with positive intent. Giving feedback to get frustration off your chest, hurt the other person or further your agenda isn’t tolerated. When you give feedback clearly explain how a specific behavior will help the individual or company. Let’s say someone has a bad habit of talking over people in meetings. Instead of going confronting them and stating “you’re rude” instead suggest “We missed some really important points which we had not considered before”.

2. Actionable

The feedback needs to focus on what they can do differently. Similar to the point above, it needs to be something they can do. If there’s nothing the individual can do about it, think twice before saying it.

Receiving feedback

3. Appreciate

It’s natural for us to be defensive or provide excuses when receiving criticism; we want to protect our ego and reputation. When someone gives you feedback you need to instead show appreciation and listen carefully, consider it with an open mind and don’t become defensive or angry.

4. Accept or discard

You are likely to receive lots of feedback. You should listen and consider all feedback; however, you aren’t required to follow it. Acknowledge and appreciate it but both parties should understand that the decision to react upon that feedback is entirely up to the recipient.

Key Idea #5 – Remove controls

When you have a team full of talented people who you can trust and who are willing to speak up and and steer the company in the right direction, you can finally begin to remove controls like holiday policies, travel policies, expense policies and approval processes.

Unlimited holidays

One of the first, and maybe most controversial to go is to allow unlimited holidays. Netflix operates a system where salaried staff can take off as much time as they like, whenever they like and with no approvals required or tracking of holidays recorded.

On the face of it, it’s a pretty drastic policy, however, as our workplace changes how we decide to work must change too. The value of creative work shouldn’t be measured by time, but instead output and impact. If a manager wants to give a member of staff a raise, the criteria shouldn’t just be how “hard they’ve been working” they need to be making an impact too.

A key factor behind making this policy work is that those at the top must follow it too – it’s no good management not doing it and expecting the other members of staff to go ahead with it, people observe what those at the top are doing and mimic that.

Once you give people unlimited holidays they can flex their work, they can work around the company and be happier as a result. If an employee wants to work 3 intense weeks and then take a week off travelling they can. This flexibility pays off when trying to develop a culture of innovation.

This policy should also be led with context – which you’ll read more about below. If the crunch time for your teams is January, let the team know that, don’t ban them from taking time off, just explain the importance of everyone needing to pull together then and let them decide.

Flexible travel policies

Many companies travel policies are too rigid to fit into today’s nuanced world and because of this, Netflix has instead given freedom to their employees to book whatever they believe is suitable.

The only key caveat, however, is that it must be in the companies interest. Whilst taking that business class flight the night before a big presentation is in the companies best interest and can be justified, taking a short-haul flight in business class to meet other colleagues probably isn’t.

Simplify decicions

One of the final controls to be removed is the standard decision making process many companies have in place. In most companies if you want to do something you have to go through many different people to finally reach a decision. In addition, bosses have a large influence over whether a decision goes ahead or not and as a result, people seek to please their boss instead of doing what’s best for the company.

Netflix looks at it differently, if you’ve hired the right staff who are talented then they should be free to make whatever decision they believe is in the best interests of the company. If a manager has any reservations about this, Reed Hastings suggests to ask yourself these simple questions:

Are they a stunning employee?
Do they have good judgement?
Do they have the ability to make a positive impact?
Are they good enough to be on your team?

If you cannot answer a big “YES” to any of them, then they don’t belong on Netflix’s team and deserve a generous severance package.

If you can trust your employee to make the right decision let them go ahead and do it! But make sure they at least get feedback from others before they do it…

Getting feedback on your ideas

Whilst someone has the freedom to go and work on what they think is best, it’s best to consider what others think before going all in…

The best way to do this is to “farm for dissent” as Netflix calls it. You should socialize the idea and put it out into the open for others to scrutinize it. Make a shared memo with the key details, send it around and let others give you their honest thoughts.

Once you have feedback on your idea you can use it to make amendments, rethink the idea or scrap it all together.

Thanks for checking out the summary, don’t forget to see what other summaries we have and stay tuned for the podcast!