Photo by Thibault Penin / Unsplash

Innovation Machine: 9 Secrets from Netflix

career Sep 20, 2022

The other day, I was driving after just picking up my son from the nanny. And when I drive, I don't particularly do anything other than listening to the radio, because he doesn't really like me to listen to a podcast when I'm with him. So, I tune on the radio, and play some music.

But that day, no matter the radio station I would play, I would always hear the same song...

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Running Up That Hill
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/4:55

This song was everywhere.
In radio stations.
In stores.
A remix version was even playing at the nightclub I was in for a birthday the very same night.

Why was that song so popular?
If you've watched Stranger Things Season 4, you already know all about this song. This is Max's favourite song when she faces the terrifying Vecna.

Me trying to run away from Kate Bush's song (source: Netflix)

And this moment of magic has been brought to you by Netflix!

How does Netflix bring us such great hits?

Ever heard of Sex Education? Money Heist (in France, we call it "La Casa de Papel"), Squid Game? You? The Queen's Gambit?

These are all Netflix hits! And they all happened in the last few years. So how do you create hit after hit? And how can you adapt this to your own world: cutting-edge engineering?

Let us find out...

No Rules Rules

Back in the early 2000s, Netflix was a DVD rental service company way behind the leading company named "Blockbuster".

When Blockbuster would make millions selling DVDs, Netflix was struggling to just keep its head off the water. Over 20 years later, Netflix is the world heavyweight champion of streaming, and Blockbuster is no more.

What happened?
Netflix implemented 9 rules, to "pivot", and innovate constantly.

Their innovations involve finding incredible show ideas like Stranger Things and making chess cool again, but also redefining the entire TV Show genre.

Think about it, before Netflix, every single TV Show had 10 seasons of 24 episodes each, all 40 minutes long.

In 2021, I've read the book "No Rules Rules" from Netflix's CEO Reed Hasting. In this book, Reed shared 9 "secrets" he follows to build a culture of innovation.

  • Secret #1: Talent Density
  • Secret #2: Open Feedback
  • Secret #3: Border Control
  • Secret #4: Pay Top Market
  • Secret #5: No Closed Doors
  • Secret #6: No Decision-Making Process
  • Secret #7: The Keeper's Test
  • Secret #8: Feedback Circle
  • Secret #9: Context Leadership

So let's jump to Secret #1:

Secret #1 β€” Talent Density

Netflix wasn't always an innovation beast. At the hardest moment of their lives, Netflix had to let go half of their team for financial reasons. If you had to let go 50% of a team, who would you let go? Probably not the very best.

So Netflix decided to keep only the absolute best, and nobody else.

What happened? Surprisingly, the company got much better. Talents had more responsibility, they were more productive, and had better results.
By letting go 50% of the team, they found out that the average talents were draining the top performers to the bottom!

Since then, Netflix only keeps top performers, 10x, whatever you want to call them... That's what they call Talent Density. That's the first element of their secret sauce.

Do you have bad or even toxic people in your team? These will prevent innovation from happening.

Secret #2 β€” Open Feedback

At Netflix, if you don't give feedback, you're out. People are paid for their opinion, not to please their bosses.

Worse:

It's seen as disloyal to your company to agree with your boss if you actually disagree.
You are invited to interrup your boss in the middle of his presentation, and demonstrate he's going in the wrong direction. And he'd actually have to thank you for that.

Feedback, feedback, feedback.

But what about the brilliant jerks?

Of course, some people will take advantage of this and give negative feedback to ruin their co-worker's moral, to make them want to quit, and to ultimately lift themselves up.

These are called the brilliant jerks... but they're rapidly spotted and kicked out.

Secret #3 β€” The Border

As a Netflix Employee, you have an incredible freedom:

  • You can go to vacation anytime you want, and for as long as you want...
  • You can sign a 7M$ contract on your first month (and fail).
  • You can disagree with your boss...
  • You can fly business with the company's money...

All without needing approval from anyone, or risking being in any trouble.

Could you do that with your company? In most of the companies I've worked for, I couldn't even get a computer without going through months of validation processes.

So taking a vacation without asking? Flying private?
Here's the CEO take on this:

Don't people abuse the system?

Oh, I saw that one coming. And yes, they do.
Just like in any freedom system, people abuse it.
In my former company, I remember an employee came on his first day, saw a pooling table, and decided to spend his entire time playing!

Abusers exist everywhere, and you can't really prevent that, but overall, the advantages of giving freedom and responsibility far outweights the drawbacks.

Remember: Netflix has a high talent density (secret #1) and a strong feedback loop (secret #2), so they aren't giving freedom to just anyone, just their employees!

Secret #4 β€” Top Market Pay

Imagine you're working as a Computer Vision Engineer in a company, and paid somewhere around 50k per year.

One day, you see an offer for a similar position, similar level of experience, and similar city, but paid 70k. What do you do?

There are good chances that you either ask your management to pay you more, or leave.

Netflix doesn't want to see the good talents go, so they pay them top market.
It means that if you find a higher offer somewhere else, just ask your manager for that amount, and they will match it...

What if the manager thinks you don't deserve the top market salary?
Well, you're out!
At Netflix, you're either paid top market, or you have nothing to do here.

Can I have a bonus?

Netflix doesn't do "bonuses" because it has been proven to reduce effectiveness and performance.

But they have a "severance package".
Because you can be fired so quickly, you are signing a contract when joining stating that when fired, you receive 4 to 9 months of pay, in exchange for not suing the company (leave nicely or don't come).

I wonder how that would work in France, where firing is almost illegal.

Secret #5 β€” Never close the doors

I once worked in a company where managers were locking the door of their offices all the time. Sometimes, they'd take important company decisions, such as keeping an employee, starting a project, or even going to the CES in Las Vegas. But these decisions were always made behind sealed doors.

Because of that, we employees always felt like we were "out". By definition, locking doors excludes people.

Netflix has a complete transparency policy.
If you're about to lose your job, they'll tell you "Hey, we're thinking of removing your job, it's 50/50 for now but I thought you should know."

Let's recap so far:
Netflix employees are top performers (secret #1), can give and receive lots of feedback (secret #2). With that, they have lots of freedom (secret #3), are paid top market (secret #4), and never close the doors (secret #5).

See how this already introduces a culture of innovation? Now let's talk about the movies and TV Shows.

Secret #6 β€” The No Decision Making Process

What if you have an idea for a TV show you want to bring to Netflix?

How does that work? Imagine you just read a script about a "squid game" and instantly loved it. You think it's going to be a hit in every country. But it could also flop, and even be banned from some countries. How do you decides? How do you purchase the rights? hire movie producers? spend the money?

And who decides?
You decide!
Well, you're a top performer, remember?
You need to decide.
You can ask your colleagues and management for an opinion... But they will never tell you "Yes" or "No".

So here's how it works instead:

Netflix's Innovation Cycle

  1. Socialize the idea
  2. For a big idea, test it out
  3. As the informed captain, make your bet
  4. If it succeeds, celebrate. If it fails, sunshine it.
1: Socialize the Idea

It's not just "talk about the idea" like you would talk about a startup idea you had. You want to let everybody at Netflix know what you're working on... but also look for flaws in your idea. The feedback culture will give you honest and straightforward insights β€” so use it!

2: Test out big ideas

An employee once had the idea to download the movies to watch them offline. At the time, a lot of people were against it. YouTube wasn't doing it. So he asked the CEO for his opinion, see his answer:

Reed's response: "No. Soon we'll be announcing our first airline free Wi-Fi streaming deals with full Netflix. We are focused on streaming, and as the Internet Β expands (planes, ete.) the consumer desire for downloading will go away. Our competitors will be stuck with supporting a shrinking downloading use case for years. We'll end up far ahead on brand quality sentiment on this issue."

The employee deciced to went ahead and test the idea anyway on a small subset of the subscribers. It worked, and now Netflix provides downloads.

3: As the informed captain, make your bet
Here, you are essentially placing a bet. It could fail. You have the opinions of everyone, you tested the idea. Now make the bet.

4: If it succeeds, celebrate. It it fails, sunshine it.
Yeah, you have to celebrate it you succeed. Even small wins. On the other hand, if it doesn't work out, it's okay, but you have to do a public presentation to your colleagues and explain the lessons learned. No big deal, failures are routine at Netflix, but learning from failure is mandatory.

Secret #7 β€” The Keeper Test

Are you afraid to get fired?
Imagine being a Netflix employee.
Every 3 months, you HAVE to ask your manager: "Hey boss, if I told you I'd want to leave the company, would you do everything in your power to keep me?"

And this question makes your boss wonder "Would I fight for this talent?". If the answer is a hard no, you're out. If yes, you can't stay.

The Netflix Family isn't a family

A popular Netflix sentence is "We're a Team, Not a Family".
A Family is always here for you.

Netflix sees itself as a professional sports team: as long as you're the best in your position, you stay there. If you're not, then they see if a better position is available, if not, it's time for you to go.

Firing is common and happens fast. I noticed this at Facebook to and their "Hire Fast, Fire Fast" policy. In Netflix's culture, firing is healthy, because there is nothing worse than being in a toxic job (I can only agree with that).

Secret #8 β€” The Feedback Circle

Giving feedback is essential to improvement, but not everybody will play the game and do it.

To make sure this principle is applied, Netflix has regular feedback circle moment where the whole team gathers and everyone gives feedback to the others.

Usually, someone stands in the center, and receives feedback until declared dead.

(source)

Keep in mind the talent density, and positive culture there.

Let's see the final ingredient:

Secret #9 β€” Context vs Control

Imagine you're the parent of a sixteen-year-old boy. Lately, he started to party with older friends on Saturday nights.

You've already told him you don't want him to drink alcohol and drive, or get in the car with a driver who's been drinking, but every time he goes out you worry.

There are two different ways you might approach the problem.

  • You decide which parties your son can go to (and which he can't).
    Every time, you ask for information about the party, who will be here, will there be an adult chaperone, ...
    πŸ‘‰ This is leading with control.
  • You show him Netflix documentaries about the dangers of alcohol while driving, you buy bottles of alcohol and explain how much of each he needs to drink to be out, explain the problems on health, ... And let him decide when you're sure he understood.
    πŸ‘‰ That's leading with context.

Not every child can be led with context, some are more sensitive and responsible than others. But when you have a high talent density...

You can lead with context!
Basically, you have the right to overrule your boss' decision, and prove him/her wrong.

πŸ‘‰ When you have a decision to make, it's always the same answer "I will give you my opinion, tell you everything I think about it, but it's entirely your decision."

Your boss can't tell you what to do (leading with control), they can only give their opinion, and explain why they think this way. It's your call, captain.

Summary

Okay, let's summarize how Netflix builds an innovation machine.

  1. High Talent Density β€” only top performers stay, others are fired at lightspeed.
  2. Open Feedbacks β€” A culture of candor is installed. It is seen as disloyal to the company to agree with your boss if you actually disagree.
  3. Freedom / No Vacation Policy β€” you are a grown up, so you have high responsibility with the company's money
  4. Top Market Pay β€” if you see a highly paid offer, ask for the same amount. If it's a no, it means you shouldn't stay anyway.
  5. No Closed Doors β€” transparency, transparency, transparency!
  6. No Decision Making Process β€” If you have an idea, talk about it, find flaws, test it out, and either celebrate or do a presentation about the lessons learned.
  7. The Keeper Test β€” Every 3 months, you are reevaluated.
  8. Forced Feedback Circle β€” To make sure everyone receives feedback, everyone has to go through a circle of feedback over the last project.
  9. Lead with Context β€” Your management gives you an opinion, and their tips, but it's always your decision.

And this is how they do! This is why you're listening to "Running Up That Hill" all day long. And this is why you'll dress out as a Squid Game Worker for Halloween.

As an engineer, innovation is the lifeblood of your career.
If you can't think of ways to innovate, to bring a better user experience, to build a better product to the market, you'll spend your entire career as average.

You want to build self-driving cars?
Yes, but this is barely innovation.
Innovation would be to let the customer use the self-driving cars for free, in exchange for being shown ads.

Innovation happens when you have a culture of innovation.
You don't find great ideas if you're afraid of your management. You don't find great ideas if you're afraid of receiving and giving feedback.

Great ideas are born from innovation systems, like the one from Netflix. If you'd like to explore further, I invite you to read the book "No Rules Rules", from Reed Hasting.

I invite you to see how you can introduce and adapt these 9 elements to your own company. And if you don't see yourself as a strong talent yet, I invite you to receive my emails to learn more about being a cutting-edge engineer with advanced skills.

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