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Here are 5 secrets of Netflix's success, according to Reed Hastings

Theron Mohamed   

Here are 5 secrets of Netflix's success, according to Reed Hastings
  • Netflix shells out for top talent but also demands excellence from its workforce.
  • Cofounder Reed Hastings discussed five aspects of Netflix's corporate culture on a recent podcast.

Netflix is known for paying top dollar to secure the best employees — and demanding a huge amount from its workers.

Reed Hastings, the streaming giant's cofounder and executive chair, walked through five key elements of Netflix's corporate culture on the latest episode of "The Tim Ferriss Show."

The tech billionaire, who stepped down as Netflix's joint CEO early last year, discussed having sky-high standards, finding and removing merely adequate performers, chasing down references, and insisting people speak up.

Here are the five topics he tackled:

1. Team, not family

Netflix is run like a top-tier sports team that aims to fill each position with the best person who's also a team player, Hastings said.

Stacking its roster with exceptional performers maximizes Netflix's chance of success and also motivates, educates, and draws in even more talent.

It's "the energy driver because everyone around you is amazing, you learn so much, you attract other amazing people," Hastings said.

2. Goodbye gift

Netflix strives to root out mediocrity, but marries its Darwinian demand for excellence with some degree of humanity.

"The reward for adequate performance is a generous severance package," Hastings said.

"We want people to feel like, 'I'm trying really hard and I'm gonna give my all and if it doesn't work out, I've got a parachute.'"

Netflix offers a minimum of four months' severance in the US and above-average packages in other countries. The policy makes it less wrenching for bosses to cull so-so performers.

"The fact that there's a big severance package makes it easier for the manager to cut that person and try to find someone else who will be a rock star in that role," Hastings said.

3. Hunting down references

Netflix makes sure to recruit the best by not just calling the references they provide, but also finding other people who know the potential hire.

Hastings usually starts with a LinkedIn search for mutual connections who are closer to him than the prospective employee so they're more likely to be upfront with him. He likes to speak with them using video chat for one big reason.

"When someone's on Zoom they're much less likely to lie to me," he said. "I can ask a couple questions and they don't feel like it's being recorded and so it creates an appropriate intimacy but also a semi-anonymity."

4. Keeping or letting go

Netflix encourages its managers to take the "keeper test" once every quarter or so, Hastings said.

For each of their reports, managers ask themselves if the person was quitting to work somewhere else, would they try to change the individual's mind and fight to keep them, or be fine with them departing.

"If we wouldn't fight to keep someone, we should proactively give them a generous severance package and try to find someone that we might well fight to keep," Hastings said.

5. Open and honest

"To disagree silently is disloyal," Hastings said.

He explained that most people are brought up to be polite and agreeable, and mostly aim to please their manager and defer to their decisions.

But when a worker sees the company is doing something wrong, holding their tongue to avoid confrontation or angering the higher ups can lead to bigger, more entrenched problems and stall the forward progress of the business.

Netflix tries to avoid that issue by encouraging "radical candor" across its workforce, and pushing bosses to "farm for dissent" or seek out opposing views to their own.

"Sometimes if to help them grow I've got to be willing to argue with my manager, then that's okay," Hastings said.

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