6 Things You Need to Know About How Netflix Built Its Powerf…

Editor’s Note: In the new podcast Masters of Scale, LinkedIn co-founder and Greylock partner Reid Hoffman explores his philosophy on how to scale a business — and at Entrepreneur.com, entrepreneurs are responding with their own ideas and experiences on our hub. This week, we’re discussing Hoffman’s theory: there are many good company cultures and many bad company cultures, but a winning company culture only emerges when every employee feels they personally own the culture.

Netflix is known for its company culture. Its “Netflix Culture: Freedom & Responsibility” document is somewhat of a legend, studied by other companies and dissected by schools.  

“It may well be the most important document ever to come out of the Valley,” Facebook’s COO Sheryl Sandberg has said.

And that is exactly how Reed Hastings wants it.

As the CEO and co-founder of Netflix, Hastings is very intentional about the type of talent he hires and the kind of culture he instilled at the company. Both components have helped Netflix remain on the forefront.

“Our general model of freedom and responsibility, having amazing talent density, giving people great freedom and room to make mistakes has been very successful for technology, marketing, and original content,” he tells Reid Hoffman, LinkedIn co-founder, Greylock partner and host of Masters of Scale, a podcast series examining counterintuitive theories to growing a company.

It’s a complete 180 from Hastings’ previous job. Before founding the DVD-turned-video-streaming service, Hastings launched Pure Software — a company that scaled fast with acquisitions and an IPO. With such growth, culture was pushed to the back burner — and it ended up costing them.

“The mistakes in Pure were that every time we had a significant error — sales call didn’t go well, a bug in the code — we tried to think about in terms of, what process could we put in place to ensure that this doesn’t happen again,” he says. “What we failed to understand is by dummy-proofing all the systems, we would have a system where only dummies wanted to work there, which was exactly what happened.”

The company had a hard time adapting, and Hastings left to think about his next venture —  which ended up being Netflix.

Related: How Fiverr’s Culture Created a Company of CEOs

When he launched the company, it was going to be different. By focusing on employees and culture, Netflix could quickly pivot, scale and find success. Because of its strong foundation, the company was able to defeat Blockbuster, compete against the likes of HBO and produce original content at a fast clip.

On the eighth episode of Masters of Scale, Hastings chats with Hoffman about how having a strong culture helps the company overcome lows, push the envelope with content and allows for innovation. As the podcast’s official media partner, Entrepreneur has access to lessons and takeaways that won’t be heard first anywhere else.

Below check out insights from Hastings what it took to create as strong culture to help Netflix propel forward.

1. No ‘shiny-object’ syndrome.

Entrepreneurs are known for having “shiny-object syndrome,” where they get tired of one problem and move onto a new one. Hastings was no different.

“When Netflix had a big battle with Blockbuster — this is 10 years ago, 2005-2007 — we did many things to compete with them,” he says. “We added online ads, banner ads, on the Netflix website. We sold used DVDs like eBay. We bought some films at Sundance, and put them on DVDs.”

None of these tactics really pushed the needle. Ultimately, Netflix won by just delivering a better experience with its core product (DVDs at the time).

“When we processed the lessons learned from how we beat Blockbuster — we realized how important it was to do excellence and focus,” Hastings says.

2. Everyone’s all in.

Defining culture shouldn’t be assigned to one person, or even a small group. To have a successful work environment, all employees should have a hand in its formation.

“I believe there are many good company cultures and many bad company cultures, but a winning company culture emerges when every employee feels they personally own the culture,” says Hoffman in the Masters of Scale podcast.

Hastings agrees. “We try to constantly encourage employees to figure out how to improve the culture, not how to preserve it,” he says. “So everyone is trying to add value by, ‘Here’s a place we can improve in what we do.’”

By doing so, the culture remains alive — it is a living, breathing practice.

3. There is no family in team.

Some entrepreneurs liken their team as family. Not Hastings.

“You’ll never hear him refer to his colleagues as a family,” Hoffman says of Hastings. “It’s a term that visibly grates at him.”

He believes the traits that make a family strong — loyalty, continuous support — don’t work in a company setting.

Related: How I Established a Culture of Virtual Innovation

“Lifetime employment, unconditional support no matter what the performance is — I don’t see how that makes sense for organizational excellence and contribution to society,” Hastings says.

Rather, he compares his work team with a sport team.

“In team sports that really succeed, there often is a lot of warmth between the players,” he says. “It’s emphasizing those aspects and demonstrating that when people come in, everyone tries to help them.”

4. Trust employees to manage their time.

For Hastings, making employees work eight hour days, Monday through Friday, doesn’t mesh with the culture.

“We don’t have a nine-to-five policy,” he says. “People just work as they see appropriate.”

Nor does Netflix have a vacation policy. The company lets people take off when they want and for how long they want. “I try to set a good role model by going on a bunch of vacations, because I find it very stimulating,” he says.

This was something new for Hastings, as at Pure Software, he never took a vacation and it was detrimental to his work-life balance.

“It was always, ‘How much harder can I work?’” he says. “And now I realize it’s about living a rich and varied life, whether that helps specifically with the storytelling, or whether it really is just relaxing, and learning, and hanging out with friends.”

Because of this flexibility, Hastings decided to spend a year in Rome as CEO. “I did two weeks there, two weeks here, back and forth,” he recalls of the 2005 experience. “It was a challenging year in some ways, but it also made us more disciplined in terms of meeting schedule.”

5. Honesty is the best policy.

At Netflix, honesty is one of its core values … even if it causes some people to squirm.

One way the company gets people to open up is to have “start, stop, continue” dinners. During the meal, everyone takes turns giving each other feedback. Each person tells every other person what they wished they would start, stop and continue.

“Even though you could say that during the normal workday, many times there’s not really that much license to,” says Hastings, adding, “It’s very helpful.”

Another honesty tactic Netflix focuses on is the “keeper test”.

“You can always ask your manager, ‘Hey, if I were leaving, how hard would you work to change my mind to stay?’” he says. While some people think this is cold, Hastings does it so there are no unexpected surprises in the future, and believes it inspires everyone to be an excellent performer.

Related: Sheryl Sandberg Shares 7 Ways to Build Resilience Into Your Company Culture As You Scale

6. Schedule one-on-one time.

To understand employees’ needs, wants and feedback, Hastings took a page from Jack Welch, the famous CEO of General Electric, and schedules one-on-one meetings.

“I have lots of one-on-ones with top 500 people throughout the company, so many levels,” he says. “I try to do is be clear with them that I’m not trying to be their manager. I’m trying to learn about what’s going on, and then help them also get a sense of what’s going on with the company, and I find having that extensive network is very helpful.”

He adds that Welch met with his top 1,000 people. “He knew everything about them, and he had a direct connection with them — that’s what I aspire to be someday.”