No Rules Rules

by Reed Hastings

  I was amazed and scared! They trusted me, so my judgment should be very sharp and my decisions impeccably researched. I would be making decisions for my boss, for the boss of my boss, for the boss of my boss of my boss and for all of Netflix, on my own, no approvals needed. I felt responsibility mixed with fear like I had never felt before! That feeling catapulted me to work harder than I have in my life, to assure each contract I signed would be a blessing for the entire company.

  The feeling of responsibility felt by Netflix employees is often intense. Diego Avalos, director of international originals, didn’t know what had hit him when he joined the Beverly Hills office of Netflix from Yahoo in 2014:

  I was new to Netflix and my manager asked me to finish the acquisition of a film we were buying for $3 million. At Yahoo even a $50,000 commitment required the signature of the CFO or the General Counsel. Even though I was a director at Yahoo, I didn’t sign any deal myself.

  I got the negotiations all figured out, but when my boss said, “Sign the deal yourself,” I was plagued with anxiety. This was mind-boggling. What if it goes wrong? What if I lose my job because I made a mistake? Netflix believed in me as a stunning colleague and now it had put a noose around my neck, which I might be using to unintentionally hang myself. I had to step out of the office and go for a walk because my heart was palpitating.

  Later, after Legal had reviewed the document and handed it to me to sign, my hands got clammy when I saw my name under the signature line. I pulled out my pen and it was shaking. I couldn’t believe I was being given so much responsibility.

  Somehow, at the same time, I also felt liberated. One of the reasons I left Yahoo was that I didn’t feel ownership for anything. Even though I might have come up with an idea and started an initiative, by the time it got approved by everyone and his mother it didn’t feel like mine any more. If it crashed, I’d feel: “Well, thirty other people agreed! It’s not my fault!”

  It took me about six months to get used to this at Netflix. I learned that getting it perfect doesn’t matter. What matters is moving quickly and learning from what we’re doing. I’m at a place where I can take responsibility for my own decisions. I’ve prepared my entire career for this. I signed a 100-million-dollar multilevel deal recently—and it doesn’t feel scary anymore. It feels great.

  Often talented people find it liberating to be the informed captain—and many join Netflix because of this freedom. Some, like Diego, also find it more terrifying than comfortable. If so, they learn to adjust or move on.

  INNOVATION CYCLE STEP 4: IF IT WINS, CELEBRATE IT; IF IT FAILS, SUNSHINE IT

  If Sheila’s initiative succeeds, make it clear you’re delighted. You might pat her on the back, offer her a glass of champagne, or take the entire team out to dinner. How you celebrate is up to you. The one thing you must do is show, ideally in public, that you are pleased she went ahead despite your doubts and offer a clear “You were right! I was wrong!” to show all employees it’s okay to buck the opinion of the boss.

  If Sheila’s initiative fails, the way you, the boss, respond is even more critical. After a failure, everyone will be watching to see what you do. One possible course of action would be to punish, scold, or shame Sheila. In 800 BC, Greek merchants whose businesses had failed were forced to sit in the marketplace with a basket over their heads. In seventeenth-century France, bankrupt business owners were denounced in the town square and, if they didn’t want to go straight to prison, had to endure the shame of wearing a green bonnet every time they went out in public.

  In today’s organizations, people tend to be more discreet about failure. As the boss, you could look at Sheila sideways, sigh, and whisper, “Well, I knew this would happen.” Or you could put an arm around her shoulder, and say in a friendly voice, “Next time, take my advice.” Alternatively, you could give her a short lecture about all the things the company needs to accomplish and what a shame it is to have wasted time on a failure that was so clearly predictable. (From Sheila’s point of view, a basket on the head or a green bonnet is beginning to look quite appealing.)

  If you adopt any of these strategies, one thing is certain. No matter what you say in the future, everyone on the team will know that “don’t seek to please your boss” is a joke, that all your talk about chips and placing bets is a charade, and that you care more about error prevention than innovation after all.

  We suggest instead a three-part response:

  Ask what learning came from the project.

  Don’t make a big deal about it.

  Ask her to “sunshine” the failure.

  1. ASK WHAT LEARNING CAME FROM THE PROJECT

  Often a failed project is a critical step in getting to success. Once or twice a year, at our product meetings, I ask all of our managers to complete a simple form outlining their bets from the last few years, divided into three categories: bets that went well, bets that didn’t go well, and open bets. Then we break up into smaller groups and discuss the items in each category and what we’ve learned from each bet. This exercise reminds everyone that they are expected to implement bold ideas and that, as part of the process, some risks won’t pay off. They see that making bets is not a question of individuals’ successes and failures but rather a learning process that, in total, catapults the business forward. It also helps newer people get used to admitting publicly that they screwed up on a bunch of stuff—as we all do.

  2. DON’T MAKE A BIG DEAL ABOUT IT

  If you make a big deal about a bet that didn’t work out, you’ll shut down all future risk-taking. People will learn that you preach but don’t practice dispersed decision-making. Chris Jaffe, who was hired as a director of product innovation in 2010, clearly remembers a time Reed did not make a big deal after Chris wasted hundreds of hours of talent and resources on a failed bet of his own:

  Back in 2010 you could stream TV shows to computers but there weren’t many smart TVs. If you wanted to stream a Netflix show to your television, you needed to do that through a PlayStation or a Wii.

  I wanted people to reach into their closets, pull out their old Wii devices and start streaming Netflix. That would bring the Internet to the living room in a way most of our customers had never experienced. I decided to use a team of my designers and engineers to improve the Netflix interface on the Wii. The current interface was super-basic. Under my supervision, my group devoted thousands of hours to developing something more complex, and, I believed, attractive to users. The team worked on it full time for over a year. We named the project “Explorer.”

  At completion we tested the new interface out on two hundred thousand Netflix users. The news we got made me feel sick. The new interface was driving consumers to use the Wii interface LESS! We thought it must be a bug in the system, so we checked everything and launched the test again. Same thing. The users preferred the more basic original version.

  I was still pretty new at Netflix. Before this project I’d had one successful innovation, and now this massive flop. We had a quarterly meeting with Reed called “Consumer Science.” The product managers would get up onstage and give an update on their product bets. What had worked? What hadn’t? What had we learned? All of my peers were there as well as all of my managers (my boss, Todd Yellin; his boss, Neil Hunt; and Reed).

  I didn’t know what would happen. Would Reed rail at me for having wasted thousands of hours and hundreds of thousands of dollars? Would Neil cringe? Would Todd wish he’d never hired me?

  We talk about sunshining our failed bets at Netflix, which means talking openly and publicly about things that go wrong. I’d seen leaders speak about their mistakes with such force and transparency that I decided to shine not just some sun on my failure, but a big fat strobe light.

  I got up onstage. The room was dark. I put up my first slide. In red capital letters it said:

  EXPLORER: A BIG BET FOR ME THAT FAILED

 
; I talked about the project, detailing every part that had and hadn’t worked and explaining that this had been one hundred percent my bet. Reed asked some questions and we talked about which parts of the project led to the flop. Then he asked what we’d learned. I told him we’d learned that complexity kills consumer engagement. That, by the way, is a lesson that the entire company now understands as a result of the Explorer project.

  “Okay, that’s interesting. Let’s remember that,” Reed concluded. “Well that project’s over. What’s next?”

  Eighteen months later, with a few successes under his belt, Chris was promoted to vice president of product innovation.

  Reed’s reaction is the only type of leadership response that encourages innovative thinking. When a bet fails, the manager must be careful to express interest in the takeaways but no condemnation. Everyone in that room left with two major messages in mind. First, if you take a bet and it fails, Reed will ask you what you learned. Second, if you try out something big and it doesn’t work out, nobody will scream—and you won’t lose your job.

  3. ASK HER TO “SUNSHINE” THE FAILURE

  If you make a bet and it fails, it’s important to speak openly and frequently about what happened. If you’re the boss, make it clear you expect all failed bets to be detailed out in the open. Chris could have brushed the failure under the table, blamed someone else, or pointed fingers defensively. Instead he showed great courage and leadership capacity by addressing the failed bet head-on.

  In so doing, he helped not just himself but all of Netflix. It’s critical that your employees are continually hearing about the failed bets of others, so that they are encouraged to take bets (that of course might fail) themselves. You can’t have a culture of innovation if you don’t have this.

  At Netflix, we try to shine a bright light on every failed bet. We encourage employees to write open memos explaining candidly what happened, followed by a description of the lessons learned. Here’s an abridged example of one such communication. By chance, it was also written by Chris Jaffe but several years later, in 2016, about another project that didn’t pay off called “Memento.” This document is often passed around Netflix as an example of how to sunshine a failed bet in writing.

  Memento update - Product Management Team: Chris J

  Around 18 months ago, I brought a memo to the product strategy meeting outlining an idea to include supplemental title-level metadata such as actor bios and related titles into our second screen playback experience.

  Following a vibrant debate, I decided to pursue the project. We moved forward building the Memento experience on Android mobile. This project took more than a year. Last September we had a release build that we launched in a small test.

  In February, I concluded that we should not move forward and ended the project.

  It is important to underscore that the decision to pursue Memento and continue investing in it throughout was solely mine. This outcome and the resulting cost are my complete responsibility. Having invested in this for over a year and then decided not to launch has wasted time and resources and also brought learning. Some of my takeaways:

  There was real opportunity cost in pursuing this project which, as a result, slowed us down on important mobile innovation. This was a big miss from me on leadership and focus.

  I should have more thoughtfully considered the limited ability to gain insight from the small second screen population. I assumed that it would grow larger, but I was wrong.

  I should have considered more deeply the suggestion from the initial strategy meeting that Darwin would be a better test platform for this idea. This reminds me to be open to challenging my own preconceived notions.

  When I decided to pursue this after the product strategy meeting, I should have come back with a memo to debate the notion of launching with a flat holdback. This was misaligned with how we approach product innovation—not how we do things here.

  As I got into the project I should have realized its declining value and shut it down months ago. The crash rates in September should have been a clear signal to me to halt our work on it. The end always seemed near, which was an illusion. As it often is.

  When you sunshine your failed bets, everyone wins. You win because people learn they can trust you to tell the truth and to take responsibility for your actions. The team wins because it learns from the lessons that came out of the project. And the company wins because everyone sees clearly that failed bets are an inherent part of an innovative success wheel. We shouldn’t be afraid of our failures. We should embrace them.

  And sunshine mistakes even more!

  * * *

  • • •

  Using the terminology of the last chapter, a calculated bet that fails at Netflix is not so much an SOS (stuff of secrets) as an actual mistake is. When Chris spoke about his failed bets, Explorer and Memento, he had nothing to be embarrassed about. He was doing exactly what Netflix asked of him: thinking boldly and placing his chips on ideas he believed in. In this context, it’s not so hard to stand up onstage or send out a memo saying: “Look I made this bet, and the results were not as I’d hoped.”

  But when you make an actual mistake it can be highly embarrassing, especially when that mistake suggests a serious lapse of judgment or negligence.

  When the embarrassing mistake is a big one, the temptation to distance yourself from it is great. This is not recommended at Netflix. To survive a big mistake, you must lean all the more into the sunshine. Talk openly about it and you will be forgiven, at least the first few times. But if you brush your mistakes under the rug or keep making them (which you’re more likely to do if you’re in denial about them), the end result will be much more serious.

  Yasemin Dormen, a Turkish social media expert living in Amsterdam, showed clearly that she understood this expectation when she described a mistake she had made promoting season 4 of the Netflix hit show Black Mirror:

  In Black Mirror there is a character named Waldo who is a blue cartoon bear. The fourth season was due for release on December 29, 2017, so I dreamed up a holiday scheme to promote it.

  We would send a mysterious promotional message to hundreds of subscribers to the Turkish equivalent of Reddit from “iamwaldo.” The content would be cryptic and alluring: “We know what you’re up to. Watch and see what we will do.” I hoped people would respond by tweeting their friends: “Is Waldo back?” “Is Black Mirror season 4 out?” I was looking forward to the positive buzz it would cause.

  My big mistake was that I didn’t socialize the idea with anybody. I was busy getting ready for a week off with my family. I didn’t inform my PR colleagues in other countries. I didn’t farm for dissent with the Netflix communications team. I just set it up and went on vacation with my dad to Greece.

  On December 29, Dad and I were in an Athens museum listening to a tour guide when my phone started buzzing like mad. My colleagues around the world were going berserk about the “iamwaldo” message coming out of Turkey and the media firestorm it was causing. “Is this us?” one text read. I started a frantic search on my phone and saw Turkish media was going crazy.

  Technology blog Engadget explained what happened like this:

  ’Tis the season for ominous, intrusive internet promotional campaigns. Netflix has spooked users on a Turkish equivalent to Reddit, Ekşi Sözlük, by sending them promotional direct messages meant to hype up the debut of Black Mirror’s fourth season. The messages from “iamwaldo” (a reference to Black Mirror season two’s “The Waldo Moment”) came in the middle of the night and sounded almost like a threat: “we know what you’re up to,” they read, “watch and see what we will do.”

  The snafu even made the mainstream British media: “Black Mirror season 4: Viewers RAGE over ‘creepy marketing’ stunt. ‘Not cool!’” shouted the headline from the news site Express. Yasemin re
called the whole painful experience:

  My heart sunk into my socks. I felt my stomach turn. This mistake was one hundred percent mine. I’d set up this campaign and hadn’t socialized it with anyone. My colleagues were mad and my boss was mystified.

  My father took me aside. I was practically in tears as I explained what had happened. “Do you think you’ll get fired?” he gasped. And that made me laugh. “No, Dad! We don’t get fired at Netflix for things like that. We get fired for not taking risks, for not making bold moves. Or for not talking openly about it when we screw up.”

  Of course, I won’t make the mistake of not socializing another media event. That might get me fired.

  I spent the rest of my holiday outlining for everyone what mistake I’d made and what I’d learned from the mistake. I wrote memos and made dozens of calls. I spent that entire vacation sunshining—and not the kind you normally do on the beach in Greece.

  Yasemin has gone on to have a great career at Netflix. Five months after the “iamwaldo” blunder she was given a position of senior marketing manager, increasing her responsibility 150 percent, and eighteen months after she was promoted to director of marketing.

  Most important were the lessons that not just Yasemin, but the entire Netflix Marketing team learned from her mistake. “When we hire new marketing people, we have a series of historic cases we cover with them to teach what not to do. The Turkey Black Mirror campaign is one of our favorite teaching cases and everyone talks about it.” Yasemin explains. “It demonstrates so clearly the importance of socializing and what happens when you don’t do it. But it also helped all of us in marketing to remember our goal at Netflix is to create moments of joy. So don’t run a campaign that’s a little creepy. Don’t try to spook the public into watching our shows. Instead, a good campaign should be exciting, joyful, and just plain fun.”